Trump pressures US Fed's Powell to cut rates ‘a full point'

Straits Times

21 hours ago

WASHINGTON – President Donald Trump urged the US Federal Reserve to cut rates by a full point, intensifying his pressure campaign against Chair Jerome Powell.
''Too Late' at the Fed is a disaster!' Mr Trump posted June 6 on social media, using a derisive nickname for Mr Powell. 'Europe has had 10 rate cuts, we have had none. Despite him, our Country is doing great. Go for a full point, Rocket Fuel!'
The US president has repeatedly called on the Fed to lower rates, but thus far has not said by how much.
While the size of Mr Trump's rate-cut demand – a full percentage point – was unusual, his call for the central bank to lower rates is not new. The president, who first nominated Mr Powell to the job in 2017, has regularly complained that the Fed chief has been too reluctant to cut borrowing costs. Mr Trump pushed Mr Powell to lower rates in a White House meeting in May.
Fed officials are scheduled to meet June 17-18 in Washington and are widely expected to leave their benchmark rate unchanged, as they have done all year. Many policymakers have said they want to wait for more clarity over how Mr Trump's policies on trade, immigration and taxation will affect the economy before they alter rates.
It would be highly unusual for the Fed to lower its benchmark rate by a full percentage point at one meeting outside of a severe economic downturn or financial crisis. Officials last cut rates by a full point in March 2020, when the US economy was cratering as the Covid-19 pandemic prompted widespread shutdowns and layoffs, triggering a deep recession.
The Fed targets 2 per cent inflation over time, and adjusts interest rates with the goal of maintaining both stable prices and maximum employment – the two responsibilities assigned to it by Congress. Lowering rates too quickly could stoke inflationary pressures, while holding them at high levels for too long could restrain the economy more than desired.
Mr Trump posted his call after new data showed US job growth moderated in May, but was still better than expected, and the unemployment rate held at a low 4.2 per cent. In a separate statement, the White House touted the 'BOOMING economy,' including job gains, increasing wages and tame inflation.
Fed policymakers in recent weeks have described the labor market as on stable footing, which they've said provides further cause for them to keep borrowing costs steady for now – especially with inflation still above their target.
Borrowing costs
Mr Trump, in a subsequent message, accused Mr Powell of 'costing our Country a fortune' by keeping rates at their current level, saying they have increased borrowing costs for the federal government that 'should be MUCH LOWER!!!'
'If 'Too Late' at the Fed would CUT, we would greatly reduce interest rates, long and short, on debt that is coming due. Biden went mostly short term. There is virtually no inflation (anymore), but if it should come back, RAISE 'RATE' TO COUNTER. Very Simple!!!' he posted.
US borrowing costs have swelled in recent years as the Fed lifted interest rates to combat historically high inflation. The average interest rate on US Treasuries outstanding is currently around 3.36 per cent, well above levels the government enjoyed before the Fed started ramping up rates.
Last fiscal year, the government's interest costs on debt were the equivalent of 3.06 per cent as a share of gross domestic product, the highest ratio since 1996.
Mr Trump and congressional Republicans have vowed to rein in government spending and lower deficits, but the tax Bill they are advancing would likely do the opposite, according to several estimates.
The nonpartisan Congressional Budget Office said on June 5 that added interest costs from the Bill would come to US$551 billion (S$708 billion) over a decade. CBO estimates didn't account for other potential effects, such as any boost to growth. The agency separately has estimated interest costs would shrink if high tariffs stay in place, reducing borrowing needs. BLOOMBERG
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