President Donald Trump took his first shot at the Federal Reserve, saying Thursday that it would keep downward pressure on interest rates.
Addressing a gathering of world leaders at the World Economic Forum in Davos, Switzerland, the new president did not mention the Fed by name in a wide-ranging policy speech but made clear he would seek lower interest rates.
“I will demand an immediate reduction in interest rates,” Trump said. “And they should similarly decline around the world. Interest rates should follow us around the world.”
The comments represented an initial strike at Fed officials, with whom he had a highly contentious relationship during his first term. He often criticized the chairman Jerome Powellwhom Trump appointed, at times calling policymakers “stupid” and comparing Powell to a golfer who can't putt.
Stock exchanges had little reaction to these statements, although the yield on 2-year policy-sensitive Treasuries fell to 4.29%.
2-year performance
In the furore surrounding the president's first week in office, he made no mention of his views on monetary policy. However, during the presidential campaign, Trump indicated that he should have an influence on interest rate decisions.
For their part, Powell and his colleagues stressed the importance of Fed independence. Powell, in particular, has often emphasized that the central bank does not make decisions based on political considerations. Trump has no statutory authority over the Fed, although he does nominate members of the board of governors.
The Fed's independence is seen as crucial to market stability, although the central bank has come under fire in recent years for labeling a rise in inflation in 2021 as “temporary,” leading to a series of aggressive rate hikes.
Trump's comments come less than a week before the Fed's two-day policy meeting, which ends on Wednesday.
Markets have virtually no chance for the Fed to further reduce the benchmark interest rate, which is currently in the range of 4.25-4.5% after cuts of a full percentage point in the last four months of 2024. Traders are pricing in the first rate cut, according to CME Group data will probably take place in June, and the probability of another rate cut before the end of the year is 50-50.
The Fed cut the funds rate after increasing it by 5.25 percentage points to fight inflation. While inflation remains above the central bank's 2% mandate, officials said policy does not need to be as tight as they believe the pace of price increases is slowing.
Trump blamed the rise in inflation under the former president Joe Biden on “the waste of deficit spending.”
“The result is the worst inflation crisis in modern history and sky-high interest rates for our citizens and indeed around the world. “Food prices and the prices of almost every other thing known to mankind have skyrocketed,” he said.
A Fed official declined to comment on Trump's remarks.