President-elect Donald Trump promised to lower borrowing costs but economists predict high interest rates. Trump's criticism of the Federal Reserve, particularly under Chairman Jerome Powell, could escalate again, raising concerns about political interference in the Fed's independence.
Federal Reserve chair Jerome Powell speaks at the DealBook Summit in New York, Wednesday, Dec. 4, 2024. WASHINGTON — President-elect Donald Trump campaigned on the promise that his policies would reduce high borrowing costs and lighten the financial burden on American households.
“The risk of conflict between the Trump administration and the Fed is very high,” Olivier Blanchard, former top economist at the International Monetary Fund, said recently. If the Fed hikes rates, “it will stand in the way of what the Trump administration wants.”Yes, but with the economy sturdier than expected, the Fed’s policymakers may cut rates only a few more times — fewer than had been anticipated just a month or two ago.
Trump has also proposed a variety of tax cuts that could swell the deficit. Rates on Treasury securities might then have to rise to attract enough investors to buy the new debt. Political leaders have typically wanted central banks to do the opposite: Keep rates low to support the economy and the job market, especially before an election. ResearchEven if Trump doesn’t technically force the Fed to do anything, his persistent criticism could still cause problems.
It is also likely that the stock market would tumble if Trump attempted such a brazen move. Bond yields would probably rise, too, sending mortgage rates and other borrowing costs up. Since the mid-1980s, with the exception of Trump in his first term, presidents have scrupulously refrained from public criticism of the Fed.
Federal Reserve Jerome Powell Donald Trump Interest Rates Political Interference
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