Trump warns Fed Chair to refrain from raising interest rates until after election

Donald Trump has warned Fed Chair Jerome Powell to refrain from cutting interest rates before the November presidential election.

In an interview with Bloomberg, Trump indicated the Fed would “maybe” lower interest rates before the election but said, “It’s something that they know they shouldn’t be doing.”

Reading between the lines, Trump implied that rate cuts in the coming months could bolster President Biden’s reelection campaign.

That’s not a far-fetched reading. When he was president, Trump accused the central bank of undermining his economic policy by keeping rates elevated. He said Powell’s Fed was “derelict in its duties if it doesn’t lower the rate and, even, ideally, stimulate.”

Despite his public squabble with Powell, Trump told Bloomberg that he’d let the Fed leader serve his entire term, which ends in 2026. “I would let him serve it out, especially if I thought he was doing the right thing.”

Trump’s clarification on Powell’s future followed reports that he was considering ways to fire the Fed chair if he were reelected.

As The Wall Street Journal reported, this was part of a broader effort by Trump’s advisers to radically reshape the Fed, including eroding its independence from the political process.

In the meantime, all signs are pointing to Powell going against the ex-president’s wishes.

All signs point to a rate cut before November

Unfortunately for Trump, the Fed is widely expected to begin cutting interest rates before November in response to cooling inflation. According to CME Group’s FedWatch Tool, markets have placed 96% odds of a September rate cut.

Although Powell hasn’t given a timeline for rate reductions, he recently testified before lawmakers that the Fed won’t wait for inflation to return to 2% before moving forward.

“You don’t want to wait until inflation gets all the way down to 2%,” he said. “If you waited that long you probably waited too long because inflation will be moving downward and would go well below 2%, which we don’t want.”

The Labor Department’s most recent CPI report showed annual inflation slowing to 3% in June, the lowest in more than three years. The core PCE index preferred by the Fed fell to 2.6% in May.

Those figures indicate that inflation is steadily returning to the central bank’s 2% target, which suggests rate cuts are likely soon.

With the potential of a Trump presidency looming, the Fed has quietly shored up support for maintaining its political independence. In a report to Congress earlier this month, the Fed emphasized “broad support” for the central bank to continue operating without political pressure.

“There is broad support for the principles underlying independent monetary policy,” the report said. Powell added that he thinks “support for Fed independence is very high where it really matters on Capitol Hill, in both political parties.”