Former President Donald Trump has been vocal in his desire for the U.S. Federal Reserve to lower interest rates. He would like to see them fall below 1%. He contends that the current mortgage rates are killing homeownership, as many Americans simply cannot afford a mortgage at today’s rates. Trump focuses his criticism on Jerome Powell, the Fed Chair he appointed during his first term. He has been ruthless on Powell, even calling the Fed chair a “numbskull” for sticking to high interest rates.
Trump is counting on enormous interest rate cuts to boost a faltering economy. He claims that these cuts will dramatically reduce government borrowing costs as well. His criticisms of Federal Reserve chairmen have been unrelenting and loud. Earlier this month, he attempted to remove Lisa Cook from her seat—one of just seven of the Federal Reserve’s governors. He accused her of criminally executing false affidavits on her home. These moves are a symptom of Trump’s continued frustration with the Fed’s response to his policies.
Most recently, Christine Lagarde, President of the European Central Bank, expressed her concern over the fallout from Trump’s rhetoric. In an interview with Radio Classique, she magnified those fears. She cautioned what would happen if Trump were to weaken the independence of the Fed. Lagarde cautioned that influencing the Federal Reserve would do irreversible damage to economic stability. This threat hangs over both the U.S. and global economy.
“I think it would be a very serious danger for the US economy and the global economy.” – Christine Lagarde
Lagarde’s comments are noteworthy at a moment when a cut in U.S. interest rates is all but certain later this month. The Federal Reserve takes interest rate policy outside of normal government accountability. In recent years it has come under fire as more and more of Trump’s criticism has come under fire.
Trump and Powell have had a tumultuous relationship, where they have frequently clashed over macroeconomic policy. Yet, here we are, Powell still serving as Fed Chair. Lagarde cautioned that while Trump has expressed his intentions regarding interest rates, it would be practically challenging for any president to take control over such policy.
Trump’s return to power on January 6th. His impact on economic policy has reignited important conversations about the importance of preserving the Federal Reserve’s independence. Even today, analysts are watching carefully to see how these dynamics might shape future monetary policy moves.