Trump once more encourages the Federal Reserve to decrease interest rates
Donald Trump Urges Fed to Lower Interest Rates Again
Once more, former president Donald Trump has taken to Truth Social to request the U.S. Federal Reserve (Fed) to slash interest rates.
In a post, Trump wide-rangingly stated: "Fuel prices have just plunged below the $1.98 per gallon mark, the cheapest in eons, food prices (and eggs!) are dwindling, energy prices, mortgage rates, employment is robust, and billions are streaming in via tariffs. [...] NO INFLATION, THE FED SHOULD SLASH ITS RATES."
Trump's persisting pressure on the Fed chair
Trump has been hounding Fed Chairman Jerome Powell to reduce interest rates for quite some time. Trump appointed Powell as the helmsman of the world's most pivotal central bank during his tenure. However, Powell wishes to observe and assess inflation trends before relaxing the reins on interest rates further.
*Why is an autonomous central bank crucial?*Trump had apparently considered axing Powell as Fed chairman, though this would be legally tricky. Later, the president affirmed that he had never intended to dismiss Powell.
The Fed's board is scheduled for a meeting next week to revisit monetary policy. Market experts currently deem it unlikely that the key interest rates, currently set between 4.25 and 4.50 percent, will be lowered in this session.
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Central bank independence (CBI) is essential for effective monetary policy due to three interconnected factors: credibility in inflation control, resistance to political cycles, and long-term economic stability[1][2][5].
Maintaining Inflation Control and Credibility
An independent central bank can prioritize price stability without facing political pressure to pursue short-term economic stimulus. A lack of political influence can safeguard public trust in inflation targets, as leaders would focus on long-term, sustainable policies[1]. CBI aids in anchoring inflation expectations, making monetary tools like interest rate adjustments more potent during crises[1][5].
** Avoiding Political Cycles**
Politicians might prioritize electoral gains, leading to policies that artificially stimulate growth (e.g., rate cuts) before elections, potentially risking long-term stability[1][3]. Allowing technocrats to handle monetary policy reduces volatility linked to political cycles[2][5].
Long-Term Stability and Favorable Economic Outcomes
CBI allows for data-driven decisions based on mandates like full employment and price stability. Theoretical models suggest that autonomy minimizes discretionary policy risks, promoting financial stability and sustainable growth[5]. For example, the Fed’s dual mandate functions effectively when shielded from partisan pressures[4][1].
By separating monetary and fiscal authorities, CBI ensures policy continuity, enhances institutional reputation, and mitigates inflation shocks[1][5]. Historical examples, such as inflation crises caused by political meddling, highlight its necessity[1][3].
- Donald Trump, in a recent post on Truth Social, urged the U.S. Federal Reserve (Fed) to significantly lower interest rates, citing falling fuel prices, decreasing food and energy costs, robust employment, and high tariff revenues as reasons.
- Trump has persistently pressured Fed Chairman Jerome Powell to reduce interest rates, however, Powell wishes to examine inflation trends before any further rate decrease.
- The Fed's board is due for a meeting next week to reassess monetary policy, but market experts currently consider it improbable that key interest rates will be lowered in this session.
- In the broader context, central bank independence is crucial for effective monetary policy, providing credibility in inflation control, resistance to political cycles, and ensuring long-term economic stability.
- The Swiss National Bank has recently reduced the cap on sight deposits, indicating a scope for gradual rate reductions and making it worth noting by those interested in finance, business, politics, or general-news.
