Trump’s pressure on Powell to lower rates comes to a head
President Trump’s pressure on Federal Reserve Chair Jerome Powell to lower interest rates will come to a head Wednesday at a pivotal meeting of the central bank.
Trump has sought to reshape the Federal Reserve, pushing to remove board of governors member Lisa Cook and tapping White House economic adviser Stephen Miran to fill a vacancy.
The president has called for a big cut, deeming Powell “too late,” and has been eyeing September as the final chance for the Fed to make a change on interest rates.
Wall Street is fully expecting a rate cut, which is expected to be announced Wednesday afternoon. Futures markets were pricing in a quarter-point cut with a 96 percent probability on Monday afternoon, with a 4 percent chance of a larger half-point cut.
Trump on Sunday again called Powell “incompetent.” He is waiting for the chair’s tenure to come to an end next year and has been evaluating nominees to replace Powell.
“I don't think he can help with cutting. It's perfect for cutting. And the thing that he's hurting most is housing for people, but because we're doing well and everything, energy is way down, groceries are down, everything, almost everything, is way down,” Trump said. “But housing, because of the Fed, is not what it should be, but it's not what it is.”
Inflation rose in August to a 2.9 percent annual increase from 2.7 percent in July, as companies jacked prices.
The increases are noticeable in heavily imported goods and components, which are subject to tariffs under Trump’s new trade regime. Audio equipment is up 12.2 percent from a year ago, furniture is up 9.5 percent, women’s dresses are up 6.2 percent, men’s pants are up 4.2 percent, and motor vehicle parts are up 3.4 percent.
Miran, who would serve simultaneously as chair of the White House Council of Economic Advisers (CEA), was sworn in Tuesday with enough time to vote on the rate decision on Wednesday. The Senate confirmed his nomination Monday evening in a 48-47 vote along party lines.
Miran is widely viewed as one of the chief architects of the White House’s path-breaking economic policies. He’s also seen as a close ally of Trump on monetary policy.
Meanwhile, Trump tried to block Cook from participating in this week’s meeting and was blocked in the courts.
A federal judge temporarily halted Cook’s firing, which Trump based on allegations that she committed mortgage fraud, while she challenges it in court. The administration appealed the decision, filing a response in federal appeals court on Sunday, and the court denied the attempt Monday night.
While Trump has relentlessly pressured the Fed to slash rates and made moves to ensure the board will follow his lead, forthcoming cuts likely have more to do with a softening labor market than explicit political pressure.
Employers hired just 22,000 people in August, a number that brought the three-month average down to 29,000 hired per month since June. The drop is likely due to both lower demand for workers and lower supply.
Companies have been complaining about policy uncertainty due to Trump’s tariffs since they were first delivered, likely reflected in a drop in capital expenditures in the second quarter. Trump’s immigration crackdown has also resulted in fewer available workers.
The rate cut from the Fed could be the first of multiple this year. Futures markets have odds-on chances for quarter-point cuts at the next three meetings of the Federal Open Markets Committee, spanning September, October and December.
This could bring U.S. central bank policy — which has been a source of intense frustration for the president since he took office — back into Trump’s good graces. It could mark the beginning of a broader policy alignment between the Fed and the White House, which has sought to exert wider ranging control over economic policy.
Trump’s tariffs have reset relations between the U.S. and most of its trading partners, breaking from decades of so-called free trade deals. He fired the head of the Bureau of Labor Statistics, accusing the agency without evidence of producing “rigged” economic data and sparking concerns about politicized economic data.
The White House sought to impound $3 trillion worth of congressionally approved federal funding in January before rescinding the order two days later. Trump has also taken a public stake in several private corporations, including chipmaker Intel and in U.S. Steel as a condition of its acquisition by Japanese rival Nippon Steel.
Trump’s pressure campaign on the Fed could have the most lasting effects of any of these initiatives if he brings the central bank, long held to be an independent entity, under more direct executive control.
As CEA chair, Miran has proposed some major reforms to the Federal Reserve system, including nationalizing regional reserve banks and changing the voting structure of the rate-setting committee. Some of Miran’s other proposals, including a devaluation of the dollar through a hypothetical “Mar-a-Lago Accord,” have already come to pass.
This has led to concerns under Trump about “fiscal dominance,” which is when the traditional roles of fiscal and monetary policy switch places. Instead of worrying about inflation and employment, the Fed more closely services U.S. debt levels, while Congress and the Treasury Department deal more directly with price levels.
Billionaire investor Ken Griffin, a Trump supporter, was critical of the president’s “interventions” in central bank policy in an op-ed earlier this month.
“While the U.S. benefits from a large stock of credibility accumulated over decades, it isn’t limitless,” Griffin wrote in the op-ed he co-authored with University of Chicago Business School professor Anil Kashyap. “If eroded, markets will demand far higher interest rates for longer-term debt.”
When the Fed opted to not cut interest rates in July, Trump blasted Powell as “TOO LATE, and actually, TOO ANGRY, TOO STUPID, & TOO POLITICAL, to have the job of Fed Chair.” He has argued that Powell lowered interest rates in the past to help former President Biden and former Vice President Harris.
The nation’s central bank kept short-term interest rates at a level of 4.25 percent to 4.5 percent, and the vote included the first double dissent from Fed board officials in more than 30 years when Vice Chair of Supervision Michelle Bowman and board of governors member Christopher Waller voted to lower them.
Before that Fed decision, Trump and Powell had a fairly cordial meeting at the Federal Reserve headquarters to review the building’s renovation. Trump said there was no tension between him and the chair he has railed against for years.
At the time, Trump predicted the Fed “probably won’t” lower rates but added, “I hear they’re going to do it in September, not today. For what reason? Nobody knows.”
Trump has mused about firing Powell, whom he appointed to the job in 2017. In July, he indicated to Republicans during a meeting in the Oval Office that he plans to fire Powell, a senior White House official told The Hill at the time, and markets quickly dipped, with the S&P 500 falling into the red. He said later that day it is “highly unlikely,” but he doesn’t “rule out anything.”
While Wall Street braces for the Fed meeting, markets rose on Monday. The S&P 500 increased 0.5 percent to close above 6,600, the Nasdaq Composite rose 0.9 percent and the Dow Jones Industrial Average gained 0.1 percent.