The Obsession Behind Trump's Push for Rate Cuts: What Is He Really Worried About?
TechFlow Selected TechFlow Selected
The Obsession Behind Trump's Push for Rate Cuts: What Is He Really Worried About?
Trump's "maximum pressure" on the Fed is not baseless; significant rate cuts usually indicate economic problems. Analysts pointed out: "Someone must have told him we're in big trouble."
Navigating Web3 tides with focused insightsAuthor: Jinshi Data
Former U.S. President Donald Trump wants the Federal Reserve to slash short-term interest rates sharply down to 1%. Such a drastic rate cut typically only occurs in emergencies, such as an unexpected recession or financial panic. So what is Trump really worried about?
Currently, the U.S. short-term policy rate stands at around 4.25%, while the historical average is 4.6%. The Federal Reserve adjusts interest rates to manage inflation and maintain economic health. If inflation continues to ease, the Fed may gradually lower rates to around 3.5% over the next year or so.
Yet Trump’s own tariff policies have become a major obstacle. By imposing new taxes on imported goods, Trump has raised costs for businesses and consumers. Most economists believe these tariffs will push inflation up by about one percentage point—from the current 2.4% to 3.5% or higher.
Despite having promised during his presidential campaign last year to “significantly lower prices,” Trump now appears unconcerned about inflation. For months, he has been urging Fed Chair Jerome Powell to cut rates—initially requesting a 1% reduction, then 2%, and now even more than 3%. Jim Bianco of Bianco Research recently joked on social media: “After July 4th, he might start calling for negative rates.”
The Fed usually cuts rates when it believes inflation is under control and the economy needs stimulus. Lower interest rates make borrowing cheaper, boosting spending and investment. Under normal circumstances, the Fed gradually reduces rates—by 25 basis points every few months. But in times of crisis, it can act aggressively. For example, during the Great Recession from 2007 to 2009, the Fed cut rates nearly 5 percentage points over 15 months; in early 2020, amid the sudden economic collapse triggered by the pandemic, it slashed rates by 1.5 percentage points within two months.
A rate cut exceeding 25 basis points usually signals serious economic trouble. The scale of rate cuts demanded by Trump is comparable to those seen during recessions. Rick Newman of Yahoo Finance remarked: "Someone must have told him we’re in big trouble."
Trump’s economic advisors—including Treasury Secretary Bessent and White House economist Hassett—publicly express optimism about the economy, as expected. But privately, they may share the concerns of many economists and investors: the economy appears to be slowing, the labor market is weakening, national debt is rising to unsustainable levels, and Trump’s tariff policies are doing more harm than good.
Throughout both of his presidential terms, Trump has advocated lower interest rates to reduce federal borrowing costs. He frequently talks about “refinancing” government debt—a tactic familiar from his days as a real estate developer.
In recent years, relatively low interest rates reduced the average cost of government debt from 5% in 2007 to 1.6% in 2022. Like other borrowers, the government benefited from the Fed’s aggressive rate cuts in 2020. But today, the average interest rate on federal debt has rebounded to 3.3%, and the annual federal deficit has ballooned to nearly $2 trillion. Annual interest payments on the national debt now exceed $1 trillion, making it the second-largest item in the federal budget after Social Security.
Trump is no fiscal hawk. The tax-cut legislation he is pushing through Congress could add another $4 trillion to the national debt, ensuring that total debt surpasses $40 trillion by the end of this decade. But Trump should realize that someone will soon have to face the consequences of this massive debt burden—and that someone could very well be him.
On Tuesday, Trump posted on Truth Social: “Republicans, this ‘Beautiful Big Bill’ may be the greatest and most important bill in history—it delivers the largest tax cuts ever, border security, creates millions of jobs, increases military and veterans’ benefits, and much more. If it fails, it will result in the largest tax increase in history—68%!!!”
There are already signs that surging federal debt is rattling financial markets. All three major credit rating agencies have downgraded the U.S. credit outlook. Long-term interest rates this year have remained higher than expected—a classic sign that markets are struggling to absorb excessive government borrowing. This has weakened the dollar and triggered a “sell U.S. assets” trade, making foreign investments more attractive than American ones.
If Trump gets his way, sharp rate cuts would clearly reduce the government’s borrowing costs. But this does nothing to address the root problem: the debt itself is too high, and a spendthrift Congress remains indifferent.
Trump may also be concerned about an economic slowdown—the first-quarter GDP contracted. Job openings are declining, consumer confidence is low (as usual), and Americans are growing increasingly anxious about the labor market. If the economy truly weakens, the Fed will undoubtedly cut rates at some point—but certainly not as aggressively as Trump demands.
Banking analyst Chris Whalen believes the Fed may eventually lower short-term rates from the current 4.25% to 3%. However, he also warns that long-term rates on mortgages and other consumer and business loans are more likely to rise than fall, due to additional deficit spending driven by Trump’s tax cuts. This could lead to stagflation: stagnant growth, persistently high inflation, and elevated interest rates—leaving voters even more dissatisfied.
Another reason behind Trump’s aggressive stance on interest rates may be that he’s looking for a scapegoat in case of future failure. He repeatedly attacks Powell, calling him a “dummy,” a “fool,” and a “stubborn mule,” clearly laying the groundwork to blame the Fed Chair for any future economic problems. If inflation spikes, unemployment rises, or consumer sentiment remains weak, Trump can claim it’s all Powell’s fault—for failing to cut rates in time and ignoring the advice of a “smarter president.”
Most economists believe the Fed’s current short-term rate is appropriate. Almost no one forecasts a catastrophic scenario requiring emergency-level rate cuts. There is broad consensus that the Fed will act if the economy weakens further—but it will not do so on the White House’s orders.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
