President Donald Trump has continued to pressure Federal Reserve Chair Jerome Powell to lower interest rates. In a recent move, Trump sent Powell a list of central bank interest rates from around the world, along with handwritten commentary urging the U.S. rate to be between Japan’s 0.5 percent and Denmark’s 1.75 percent. Trump accused Powell of being “too late” in his approach.
In the note, which was shared on social media, Trump emphasized that the U.S. should be paying 1 percent interest. He claimed that “hundreds of billions” are being lost. Historically, a 1 percent policy rate in the U.S. has been associated with weak economic growth and low inflation.
Trump’s comments often confuse the benchmark short-term interest rate set by the Fed with the interest rate investors demand for U.S. and other debt. While Fed policy can influence the latter, it also depends on factors such as the economy, inflation, geopolitics, and institutional stability. Fed officials have been hesitant to cut rates from the current 4.25 percent to 4.5 percent range.
They want to ensure that Trump’s tariff plans won’t drive up prices, especially given the low unemployment rate and inflation above the Fed’s 2 percent target. Treasury Secretary Scott Bessent is planning for Powell’s replacement, as he is set to leave his post next May.
Trump’s pressure on Fed rates
Although Trump has urged Powell to resign, he cannot fire him over a policy disagreement. Bessent mentioned that while Trump cannot directly replace Powell, there is an opening in January, and a successor could be nominated later this year. Governor Christopher Waller, already on the board and participating in monetary discussions, is one possible candidate.
Other potential candidates like former governor Kevin Warsh would be considered once a new seat becomes available. Investor expectations are high for the Fed to start cutting the benchmark policy rate by September. Economists from Goldman Sachs recently adjusted their prediction from year-end to September, noting that disinflationary forces might prompt a sooner-than-expected rate cut.
Waller has even suggested that cuts might be warranted as early as the Fed’s July meeting, depending on inflation trends. The Fed will soon receive new jobs data for June, which could influence their decision. July 9 marks the expiration of the current suspension of some tariffs proposed by Trump.
Federal Reserve Bank of Atlanta President Raphael Bostic reiterated that he expects only one rate cut this year. He stressed patience given current labor market conditions and pointed out the uncertainty in the timing of adjusting rates.