President Donald Trump delivered his first blow to the Federal Reserve, saying on Thursday that he would pressure them to cut interest rates.
Speaking to a gathering of global leaders at the World Economic Forum in Davos, the incoming president did not mention the Fed by name in a wide-ranging policy speech, but made it clear he would seek lower rates.
“I’m going to demand that interest rates go down immediately,” Trump said. “Also, they should be falling all over the world. Interest rates should follow us everywhere.”
The comments represented an initial blow to Fed officials, with whom he had a highly contentious relationship during his first term in office. He has frequently criticized Chairman Jerome Powell, who was appointed by Trump, occasionally calling policymakers “boneheads” and comparing Powell to a golfer who doesn’t know the putt.
Markets reacted little to the statements. The yield on the 10-year note was higher in the session at 4.64% after Trump spoke.
In the flurry of activity surrounding the president’s first week in office, he did not discuss his views on monetary policy. However, he indicated during the presidential campaign that he should have a say in interest rate decisions.
For their part, Powell and his colleagues stressed the importance of Fed independence. In particular, Powell has often insisted that the central bank does not make decisions based on political reasons. Trump has no legal authority over the Fed, although he appoints members to the Board of Governors.
Fed independence is seen as key to stable markets, although the central bank has come under fire in recent years for dismissing a rise in inflation in 2021 as “transient”, leading to a series of aggressive hikes.
Trump’s comments come less than a week before the Fed’s two-day meeting that ends Wednesday.
Markets are assigning virtually no chance that the Fed will further cut its benchmark borrowing rate, which is currently targeted in a range between 4.25%-4.5% after a full percentage point cut in the final four months of 2024. Traders are pricing in the first rate cut rates are likely to follow in June and about a 50-50 chance of another move before the end of the year, according to CME Group data.
The Fed cut its interest rate after raising it by 5.25 percentage points in its efforts to fight inflation. Although inflation is still above the Fed’s 2% mandate, officials said policy need not be as restrictive as they see the pace of price increases slowing.
Trump blamed “wasteful deficit spending” for rising inflation under former President Joe Biden.
“The result is the worst inflationary crisis in modern history and skyrocketing interest rates for our citizens and even the entire world. The prices of food and almost everything else known to mankind have gone through the roof,” he said.
A Fed official declined to comment on Trump’s statements.
