Trump has high interest in the Fed lowering rates
The Powell-led Fed hesitated to raise interest rates to tame America’s worst inflation in 40 years because Powell believed inflation would be “transitory.” He has been just as reluctant to lower rates substantially over two years as inflation eased.
With President Trump breathing down Powell’s neck to cut rates to reduce the estimated $1 trillion a year the US must pay to finance its $37 trillion national debt, Powell made a grudging concession at the Fed’s annual gathering in Jackson Hole, Wyoming, earning a standing ovation after suggesting he might consider a small interest rate cut when the Fed meets again in mid-September.
Having done so, some economists and members of the financial press believe that Powell and the Fed would be reckless to cut rates with inflation stubbornly above the Fed’s 2% target, especially when no one knows if the Trump tariffs will be inflationary.
Central banks usually raise rates when inflation increases, expecting that people and businesses will cut back on spending if borrowing becomes more expensive. This helps cool the economy and reduce inflation. Conversely, they lower rates when the economy slows down, hoping to motivate people to borrow more and stimulate economic activity.
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