Why is Donald Trump at war with the Federal Reserve?

US president has again attacked the central bank’s chair Jay Powell

Donald Trump
(Image credit: Chris Kleponis - Pool/Getty Images)

Donald Trump has reignited his feud with the Federal Reserve, slamming its chair Jerome Powell for not moving more aggressively on interest rates and accusing him of having “no guts”.

Responding to the US central bank’s decision to cut interest rates for the second time this year, the controversial US president tweeted: “Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision! A terrible communicator!”

Trump’s outburst came days after he urged the “boneheads” in charge of the Fed to be more aggressive with rates. The president has long demanded large cuts, even to the point of negative interest rates. “The Federal Reserve should get our interest rates down to ZERO, or less,” he tweeted last week.

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So he was clearly disappointed when the Federal Open Market Committee announced that it would cut interest rates by just 0.25 percentage points.

Trump was not alone in his hope for a more aggressive cut. Yahoo! Finance says that some Wall Street traders anticipated a more aggressive easing of 50 points, “particularly with financial markets conditions tightening”.

Peter Boockvar, chief investment officer at Bleakley Advisory Group, said: “The stock market is of course disappointed with the limit on the amount of candy they’ll get.”

However, CNN says that though “many on Wall Street believe the Fed will need to keep lowering rates to avert a recession, perhaps even near zero, negative rates would be an extreme step”.

Richard Fisher, former president of the Dallas Federal Reserve Bank, agreed, saying: “Negative interest rates have failed in Europe and Japan. They are anathema for savers and our community and regional banks that bank the average American.”

Kerstin Braun, of the Stenn Group, explained to The Guardian that with rates heading towards zero, a problem arises because it means “banks have no incentive to loan money, making credit actually tighter for companies that want to grow”.

From the point of view of the general public, negative interest rates harm savers and those hoping to earn safe returns in fixed income because instead of earning interest, they would be penalised.

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“The 10,000 baby boomers turning 65 everyday who want to retire would certainly be disgusted with that,” Boockvar is quoted as saying by CNN.

Trump’s outburst over interest rates is the latest chapter in his frustration with Powell since he nominated him to lead the central bank in 2017.

In 2018, Trump asked advisers whether he could fire Powell, according to two sources. The South China Morning Post said Trump was acting on “rage” he felt over “the stock market’s recent plunge and his desire to blame someone”.

However, Treasury Secretary Steven Mnuchin later tweeted a statement from the president, stating: “I totally disagree with Fed policy … but I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so.”

With an eye on next year’s White House election, Trump is desperate to build a strong economy powered by cheap money, so we can expect further tensions between Trump and the Fed in the months ahead.

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