Trump Pushes Fed for Aggressive Rate Cuts: ’Slash Rates by 3 Points—Now!’

Former President Trump turns up the heat on the Federal Reserve with a bold demand—cut interest rates by at least 3 percentage points immediately. His latest intervention sparks debate over central bank independence as inflation fears linger.

Wall Street shrugs—because when has politicized monetary policy ever backfired?

Trump’s options to lower rates

If Powell continues to steady the rates, the only option is to wait for him to step down. However, Powell’s term ends in early 2026. Trump will be able to replace him, but it will be a long wait for him – the other option is to try to fire Powell sooner.

Last week, Trump made the call for Powell to “resign immediately. This was after his administration’s top housing regulator urged the US Congress to investigate the central banker.

Bill Pulte, the director of the Federal Housing Finance Agency, said that Powell should be investigated for his “political bias” and “deceptive testimony” about renovations at the Federal Reserve headquarters in Washington, DC. 

Under US federal law, the US president can only fire the Fed chair “for cause. A provision widely interpreted to mean specific misconduct, not policy decisions.

In May, the US Supreme Court reaffirmed precedent limiting the president’s ability to remove the top central banker. The ruling singled out the Federal Reserve as having a distinct status compared with other independent agencies.

A new Fed chairman whom Trump can control

Trump said he still has two or three choices in mind to succeed Powell without elaborating on who is under consideration. Treasury Secretary Scott Bessent has emerged as a contender for the role. The Wall Street Journal says National Economic Council Director Kevin Hassett is also a strong prospect.

The person who wins could be seen as only there to do what Trump wants when it comes to interest rates, which WOULD go against the Fed’s usual nonpartisan image.

Trump is allegedly thinking about naming a “shadow chair” until the current chair, Jerome Powell, leaves office next year. This would give him more power in the short term and put pressure on the Fed to cut rates.

A strange agreement would be hard to carry out. It could also negatively affect the Federal Reserve and the financial markets that depend on it to make decisions based on facts and without any outside interference.

That’s because Donald Trump’s call for lower interest rates could lead to increased volatility in the stock market, particularly affecting financial institutions like Bank of America, JPMorgan Chase & Co., and Goldman Sachs Group, as their profit margins on loans might be squeezed. 

In addition, financial ETFs such as the Financial Select Sector SPDR Fund, SPDR S&P Regional Banking ETF, and Vanguard Financials ETF could experience fluctuations due to changing investor sentiment on the financial sector’s profitability. 

Also, lowering rates might boost lending and economic activity if the Fed were to lower rates. However, it could also pressure banks’ net interest margins, impacting their stock performance.

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