Trump Lectures the Fed
Author: Greg Valliere
January 24, 2025
AS THIS HEAD-SPINNING WEEK COMES TO A CLOSE, it’s clear that Donald Trump is no ordinary president. He’s just getting started, a bull in the proverbial China shop.
AS WE’VE PREDICTED FOR THE PAST SEVERAL WEEKS, a confrontation between Trump and the Federal Reserve was inevitable — and sure enough, the gloves came off yesterday.
TRUMP TOLD THE DAVOS economic conference that his policies will lower oil prices — and with prices coming down, he said, ’I will demand that interest rates drop immediately. And likewise, they should be dropping all over the world,” he said.
TRUMP HAS FREQUENTLY ASSERTED that he knows more about monetary policy than Fed Chairman Jerome Powell. Trump said yesterday that “I think I know interest rates much better than they do, and I think I know them certainly much better than the one who’s primarily in charge of making that decision,” Trump said. “If I disagree, I will let it be known.”
THE RATE CUTS that Trump anticipated are not coming soon, not with uncertainty over inflation — and the likelihood of a shortage of Treasury paper as a debt ceiling crisis looms by later this winter.
WE CONTINUE TO BELIEVE that Trump will call on Powell to resign if the Fed doesn’t cut rates; a reduction isn’t likely, we believe, until the summer. Powell’s term as chairman doesn’t end until 2026, and he may have to endure months of attacks. At some point, Powell could throw in the towel.
ANOTHER WAY TO LOOK AT THIS is that the Fed will keep interest rates steady, as the economy over-heats; a rate hike looks very unlikely in the next few months. So as we look at monetary policy in the Trump era, rates may stay higher for longer, which isn’t what the markets were anticipating a few months ago.
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