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8h ago

Trump Presses Fed for 1% Rate Cut as Economists Caution on Inflation and Yields

Fed officials deem a 1% policy rate unjustified by current data, posing a threat to the central bank’s independence

The exterior of the Federal Reserve building is seen in Washington, D.C., U.S., June 14, 2022. REUTERS/Sarah Silbiger/File Photo
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Federal Reserve chair Jerome Powell confirmed this month that the Fed would have cut rates by now if not for President Trump's tariffs. Tom Williams/CQ-Roll Call, Inc via Getty Images

Overview

  • President Trump is urging the Federal Reserve to slash its benchmark federal funds rate from 4.25%–4.50% to 1% to reduce borrowing costs tied to his new spending and tax legislation.
  • Fed officials have stressed that current data on unemployment, growth and inflation do not justify a drastic rate cut and uphold a cautious, data-driven policy framework.
  • Economists including EY-Parthenon’s Gregory Daco warn that such an extreme reduction could de-anchor inflation expectations and jeopardize the central bank’s autonomy.
  • Ten-year Treasury yields have risen by about 60 basis points since September despite previous rate cuts, indicating that long-term borrowing costs depend on market forces beyond the Fed’s overnight rate.
  • The One Big Beautiful Bill Act is projected to add trillions to the federal deficit, which may drive up debt service costs and heighten sovereign risk premiums.