President Donald Trump lobbed his first volley at the Federal Reserve, saying Thursday that he will apply pressure to bring down interest rates.
Speaking via video to an assembly of global leaders at the World Economic Forum in Davos, Switzerland, the new president in a wide-ranging policy speech did not mention the Fed by name but made clear he would seek lower rates.
“I’ll demand that interest rates drop immediately,” Trump said. “And likewise, they should be dropping all over the world. Interest rates should follow us all over.”
The comments represented an initial strike at Fed officials, with whom he had a highly contentious relationship during his first term in office. He frequently criticized Chair Jerome Powell, who Trump appointed, on occasion calling policymakers “boneheads” and comparing Powell to a golfer who can’t putt.
Stocks reacted little to the statements, though the policy-sensitive 2-year Treasury yield edged lower to 4.29%.
2-year yield
In the flurry of activity surrounding the president’s first week in office, he has not discussed his views on monetary policy. However, during the presidential campaign Trump indicated that he should get a say in interest rate decisions.
For their part, Powell and his colleagues have emphasized the importance of Fed independence. Powell in particular frequently has insisted the central bank does not make decisions based on political considerations. Trump does not have statutory authority over the Fed, though he nominates members to the board of governors.
Fed independence is seen as essential to stable markets, though the central bank has come under fire in recent years for dismissing the inflation surge in 2021 as “transitory,” which led to a series of aggressive hikes.
Trump’s comments come less than a week before the Fed holds is two-day policy meeting that will conclude Wednesday.
Markets are assigning virtually no chance that the Fed will lower further its benchmark borrowing rate, which currently is targeted in a range between 4.25%-4.5% following a full percentage point of cuts in the last four months of 2024. Traders are pricing in a first rate reduction likely coming in June and about a 50-50 probability of another move before the end of the year, according to CME Group data.
The Fed cut its funds rate after hiking it 5.25 percentage points in its efforts to battle inflation. Though inflation is still running above the central bank’s 2% mandate, officials have said policy does not need to be as restrictive as they see the pace of price increases moderating.
Trump blamed the inflation surge under former President Joe Biden on “wasteful deficit spending.”
“The result is the worst inflation crisis in modern history, and sky-high interest rates for our citizens and even throughout the world. Food prices and the price of almost every other thing known to mankind went through the roof,” he said.
A Fed official declined comment on Trump’s remarks.