Donald Trump piles pressure on Federal Reserve chairman Jerome Powell to cut interest rates

US President Donald Trump says he expects the Fed to listen to his demands and he will speak to its chairman Jerome Powell "at the right time". Photo / Getty Images

US President Donald Trump has raised the pressure on Federal Reserve chairman Jerome Powell to cut borrowing costs, setting up a potential clash between the two men less than a week before the US central bank meets to set interest rates.

During an appearance in the Oval Office on Friday to sign several new executive orders, Trump said he knew rates “much better” than the Fed, and he would like to see them come down “a lot”.

The US central bank is widely expected to hold its benchmark rate between 4.25% and 4.5% next week, marking a pause after three consecutive cuts since September.

The Fed has signalled a slower pace of cuts this year with some officials concerned Trump’s plan to raise tariffs, slash taxes and crack down on immigration will hinder efforts to beat back inflation to 2%.

“The concerns [at the Fed] are not just about tariffs, but also a recognition that fiscal policy is not going to help bring inflation down,” said Mahmood Pradhan, an economist at Amundi.

But the Fed’s more cautious posture puts it on a collision course with the new President.

Trump on Friday said he expected the Fed to listen to his demands and would speak to Powell “at the right time”.

“I think I know interest rates much better than they do, and I think I know them certainly much better than the one who’s primarily in charge of making that decision,” Trump said. “If I disagree, I will let it be known.”

Trump elevated Powell to Fed chairman during his first term in office, but was often critical of him, especially for not cutting rates quickly enough in 2019. The President indicated on the campaign trail last year that he would not try to remove Powell from his position before his term expires in 2026.

“If the Fed continue to keep rates where they are and he thinks that it would be great to get a boost out of lower rates, then there’s a real chance of conflict,” said Douglas Holtz-Eakin, president of the American Action Forum, a centre-right policy institute.

Some economists have said that if Trump’s policies push up prices it could compel the Fed to hold back from further cuts or even raise borrowing costs.

“If the administration do stuff that really starts to push up the rate of inflation, the Fed mandate is quite clear — they will push up rates. And they will get it in the neck [from Trump] if they do,” said Brown University economics professor Mark Blyth.

Trump used a speech to executives in Davos earlier in the day to say he wanted rates to come down “all over the world” — and told the Opec cartel to bring down oil prices to make that happen.

He touched on the theme again in his Oval Office remarks to reporters a few hours later.

“I’d like to see oil prices come down, and when the energy comes down, that’s going to knock out a lot of the inflation. That’s going to automatically bring the interest rates down,” Trump said.

He also on Friday raised new doubts about Washington’s commitment to Nato and called for more defence spending by US allies in the treaty.

“They’re not protecting us,” he said of the Nato countries. “We’re protecting them. So I don’t think we should be spending, I’m not sure we should be spending anything, but we should certainly be helping them. But they should up their 2% [of GDP on defence spending] to 5%.”

Trump’s Nato comments came a day after newly sworn in secretary of state Marco Rubio “reaffirmed the US commitment” to the group, according to a record of his conversation with the alliance’s secretary-general Mark Rutte.

Among the other executive orders Trump signed on Friday was one creating a national cryptocurrency stockpile and another to authorise the release of federal files on the assassinations of President John F Kennedy, ex-attorney-general Robert F Kennedy and civil rights leader Martin Luther King jnr.

“The American people deserve transparency and truth” about the killings, said Trump. “A lot of people are waiting for this for years, for decades, and everything will be revealed.”

© Financial Times