President Donald Trump is once again turning up the heat on the Federal Reserve, urging Chair Jerome Powell to cut interest rates more aggressively. His promise? To bring back the ultra-low mortgage rates that defined earlier eras. But there’s a catch: the president can’t actually control the Fed.
🔑 Key Points:
- Trump publicly criticized Powell for not lowering rates fast enough, citing rate cuts by the European Central Bank.
- He declared he would “demand” rate reductions—but the Fed’s independence means his demands have no legal weight.
- Even if rates are cut, mortgage rates may not follow in kind.
In a recent Truth Social post, Trump said the Fed should have acted “long ago.” He pointed to seven ECB rate cuts over the past year, contrasting them with the Fed’s three in 2024. And with inflation concerns fueled by tariffs, Powell’s latest comments suggest more caution than haste.
🧩 Tariffs, Inflation, and the Fed’s Dilemma
During a speech at The Economic Club of Chicago, Powell warned that tariffs could prolong inflation and hurt employment—two key concerns under the Fed’s dual mandate. Translation? The Fed is likely to remain cautious about further rate cuts.
While Trump may want faster action to fulfill his campaign promises, the Fed already cut rates by a full point in 2024. Powell emphasized the need for “greater clarity” before making further changes.
🏛 Central Bank Independence Still Stands
The president’s public pressure campaign may resonate with voters, but it poses risks to the Fed’s independence. “Obviously a problem,” said Johns Hopkins economist Francesco Bianchi, who reminded that monetary policy must remain apolitical.
There’s historical precedent, too. In the 1970s, Nixon pressured then-Fed Chair Arthur Burns to lower rates—a decision that many believe worsened inflation. Powell, however, has shown he’s not swayed by political noise. Appointed by Trump and retained by Biden, Powell has repeatedly affirmed his independence and commitment to price stability.
He also confirmed he won’t step down before his term ends in May 2026—even if asked.
📉 Lower Fed Rates ≠ Lower Mortgage Rates
Trump’s pledge to bring back 2% mortgage rates isn’t as simple as flipping a switch. Long-term borrowing costs—like mortgage rates—depend on more than just the Fed’s benchmark rate. Market expectations, inflation outlooks, and risk premiums all play a role.
So while the Fed might eventually cut rates again, it won’t guarantee cheaper mortgages—and certainly not overnight.
