Trump showdown with Fed heats up
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Illustration: Brendan Lynch/Axios. Photos: Anna Moneymaker/Getty Images and Roberto Schmidt/AFP via Getty Images
Efforts from the Trump administration to cajole the Federal Reserve into cutting interest rates has taken a new form over the last week, with several senior officials beside the president joining the pressure campaign.
The big picture: In Trump's first term, the president jawboned chair Jerome Powell to lower interest rates. What's different this time around is that it has become a unified message from across the administration.
- There is an economic case to be made for the Fed to cut rates soon, which just this morning, a top central bank official made in a speech.
- But a core Trump argument — that rate cuts need to happen to save the government money on its borrowing costs — will likely be particularly unpersuasive to decisionmakers at the central bank.
What they're saying: "Our Federal Reserve Chair is obviously afraid of his own shadow," Commerce Secretary Howard Lutnick wrote on X last Friday. "These high Interest Rates make no sense. Enough is enough!!!"
- Vice President JD Vance wrote on X earlier this month that "the refusal by the Fed to cut rates is monetary malpractice."
- "I think there's no reason at all for the Fed not to cut rates right now," White House economic adviser Kevin Hassett said on CNBC this morning. "And I would guess that if they see one more month of data, they're going to really have to concede that they've got the rate way too high."
State of play: The last couple of months of inflation data have come in low, supporting the possibility of the Fed cutting its target interest rate below its current level of around 4.4%.
- But the consensus view of Fed officials — articulated by Powell in his news conference last week — is that the central bank has to hold its fire amid fear of a price surge due to tariffs.
- After four straight years of overshooting their 2% inflation target, the officials are wary of signaling lack of resolve to fully quash inflation. Moreover, they see the job market as in basically sound shape.
Yes, but: Two top Fed officials, both appointed by Trump, appear to be at odds with that consensus view and ready to deliver rate cuts next month.
- This morning, Fed vice chair for supervision Michelle Bowman said "should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market."
- On Friday, Fed governor Christopher Waller said on CNBC that any tariff-fueled inflation is likely to be temporary, and tentatively endorsed cutting rates next month.
Bowman and Waller are making a rate cut argument that has a shot of persuading their colleagues around the table at the FOMC. It's distinctly different from the one Trump himself is making.
- Trump said Friday on Truth Social that "numbskull" Powell would save the federal government up to $1 trillion by cutting rates.
- It was the latest in his repeated calls for the central bank to lower rates to save the government money on its debt service costs.
Reality check: If bond investors came to believe that the Fed was setting rates based on what would be most advantageous for the government's debt service costs, rather what is justified by inflation and growth, they would start to price in higher long-term inflation and thus higher long-term rates.
- "We have to cut rates to save the government money" is a nonstarter of an argument among central bankers, and would be counterproductive if they were seen as acting on the impulse.
- The whole point of giving central banks a measure of independence is to ensure they don't simply do what is most convenient for fiscal policy, but rather what is best for the economy in the medium term.
What's next: Powell is set to testify tomorrow and Wednesday on Capitol Hill, delivering his semiannual monetary policy report known as the Humphrey-Hawkins testimony.
What we're watching: Whether the new enthusiasm for cheaper money, embraced across the Trump administration, is shared by congressional Republicans, who have traditionally preached the virtues of monetary hawkishness.
