Following his bombardment of Powell last Thursday and Friday, Trump claimed this Monday that energy and food costs like eggs have decreased, with almost no inflation, but the economy might slow down unless "Mr. Too Late", the big loser Powell, cuts rates now. The "New Fed Wire Service" believes: Trump's call for rate cuts aims to mitigate trade war impacts, with this round of tariffs larger and potential inflation more severe than during his first term, making the Federal Reserve's decision more challenging.
US President Trump once again attacked Federal Reserve Chairman Powell, demanding an immediate rate cut and threatening the economy with the consequence of not reducing rates.
On Monday, April 21st Eastern Time, Trump posted on social media again mentioning Powell, whom he nicknamed "Too Late", reiterating that domestic inflation is minimal. According to Securities Times, Trump stated in his post that US economic growth might slow down unless rates are cut.
Trump's post read:
"Many are calling for 'preemptive rate cuts'. With energy costs significantly dropping, food prices (including Biden's egg disaster!) dramatically declining, most things are trending downward, with essentially no inflation."
As these costs decline as he predicted, "there's almost no inflation, but the economy might slow down unless 'Mr. Too Late' (Powell), this big loser, cuts rates now."
Trump then mentioned that the European Central Bank has cut rates seven times. Powell's actions have always been "too late", except during the US presidential election, when it was to help Democrats Biden and Harris get elected.
This is Trump's third day of publicly calling on Powell to cut rates since last Thursday and Friday.
Wall Street Insight previously noted that last Thursday, the European Central Bank decided to cut rates for the seventh time since last June. That day, Trump attacked Powell three times through social media and public speeches, first posting that Powell "should leave early", then saying he was very dissatisfied with Powell, and that the only good thing he could do was cut rates, warning that if Europe cuts rates and the Fed remains inactive, the US would be at a disadvantage.
Trump also hinted at his ability to fire Powell, stating he could immediately remove him and demanding an immediate rate cut, sparking public controversy.
Last Friday, Trump again called for Powell to lower rates during a White House event and downplayed inflation concerns. He said if we had a Federal Reserve chairman who knew what he was doing, rates would drop, and he should bring rates down.
On the same Friday, when asked by reporters about the "unprecedented option" of firing Powell, Trump's chief economic advisor and White House National Economic Council Director Hassett responded that Trump and his team are studying this issue, subtly suggesting that the Fed's rate hikes and cuts under Powell have a political leaning favoring Democrats.
"New Fed Wire Service": Trump Aims to Mitigate Trade War Impact, But This Time Inflation Might Be More Severe
Nick Timiraos, a senior Fed reporter known as the "New Fed Wire Service", believes Trump's renewed call for immediate rate cuts is to mitigate potential trade war impacts.
Timiraos noted that while Trump made similar rate cut threats during his first term in 2019 and 2020, investors see this situation differently for two main reasons:
- First, compared to his first term, Trump is now more willing to challenge institutional and legal norms. This time, in the Republican-controlled Senate, there are fewer defenders of these norms.
- Second, the tariffs Trump is imposing this time are larger and broader than in his first term, potentially causing more severe inflation this year. This might make the Federal Reserve's decisions more difficult. People are concerned that the Fed might not be able to suppress inflation through rate hikes as in 2022, which could further intensify recent overseas investors' doubts about US economic policymaking.
Chicago Fed President Emphasizes Fed's Independence as Crucial
The Federal Reserve has not directly responded to Trump's recent rate cut calls and threats to fire Powell. However, Chicago Fed President Goolsbee, who has voting rights in the FOMC monetary policy committee this year, recently emphasized the Fed's independence.
When asked by media last Sunday whether Trump's remarks undermine the Fed's status as a non-political institution, Goolsbee said he strongly hopes the Fed doesn't enter an environment where its monetary independence is questioned, as this would damage the Fed's credibility.
Goolsbee stated in a media program this Monday that bringing inflation back to the 2% target requires crucial long-term inflation expectations. The Fed's independence is critical to this. Goolsbee said the Fed chairman is the most important person in the FOMC committee, with significant influential power.
