Donald Trump hits out at US Federal Reserve Chairman Jerome Powell: ’I know interest rates better’

US Fed vs Donald Trump: The US Federal Reserve is just a few days away from unveiling its first monetary policy decision for 2025, however US President Donald Trump has claimed that ‘he understands monetary policy and interest rates better than those charged with setting it’. The January 29 verdict will be the central bank's first policy decision after Trump took charge as the 47th US President.

Regarding the current US Fed policy, the US President has said that he seeks to lower interest rates by unleashing energy production and would speak to the US Fed if needed. "With oil prices going down, I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world," Trump virtually told the World Economic Forum last week in Davos, Switzerland.

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Donald Trump on US Fed rate cuts

At a White House event following those comments, Trump said, "I think I know interest rates much better than they do, and I think I know it certainly much better than the one who's primarily in charge of making that decision," in an apparent reference to US Federal Reserve Chairman Jerome Powell.

While speaking to reporters from the Oval Office, Trump said he believed that the US Fed officials would listen to him for interest rate decisions. “If I disagree, I will let it be known," he said. Trump had appointed Powell as the US Fed chairman during his first stint as the US President in the 2016-2020 term.

While presidents have traditionally refrained from directly commenting on the central bank’s policymaking, Trump told Bloomberg News during the campaign that he should be able to tell Powell how he thinks interest rates should change.

The US Federal Reserve has a dual mandate to act independently and keep inflation and employment in check, primarily by raising and lowering short-term interest rates. As the US president, Trump does not have a say over the Fed interest rate decisions, a fact that he has frequently criticized.

Powell, who faced frequent barbs from Trump during the president’s first term, has said the central bank will make decisions on rates based on what’s best for the economy and independent of political considerations or outside pressure.

According to news agency Reuters, Trump's comments on Fed interest rate policy are highly unusual for presidents in the modern era and conflict with the agency's design of setting interest rate policy independently. Trump's bold remarks come days before the US Fed's policy meeting, with very broad Wall Street's expectations that policymakers will leave interest rates unchanged.

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Trump claims to know interest rates better than Powell: Here's what policymakers believe

The US Fed last cut its overnight interest rate target by a quarter percentage point at its December policy meeting to between 4.25 per cent and 4.5 per cent. For all of 2024, the US Fed lowered rates by a full percentage point amid easing inflation pressures and a sense among US Fed officials that they wanted the monetary policy to exert less restraint on the economy's momentum.

A number of US Fed officials, including Fed chief Powell, have expressed a need for caution about lowering rates further because of sticky inflation in the US economy. Lowering rates when inflation is still above the Fed's two per cent target could prompt price pressures to worsen rather than improve.

Speaking earlier this month, New York Fed President John Williams noted that the uncertainty surrounding government policy actions makes it particularly hard to offer guidance about the outlook for monetary policy right now.

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“The economic outlook remains highly uncertain, especially around potential fiscal, trade, immigration, and regulatory policies,” Williams said, adding, “Our decisions on future monetary policy actions will be based on the totality of the data, evolution of the economic outlook, and the risks to achieve our dual mandate goals.”

According to several Wall Street economists and market experts, Trump's pursuit of large-scale tariffs on America's trading partners, which are de facto taxes on imports, together with his plan to deport large numbers of undocumented immigrants, run a risk of reigniting inflation pressures.

Some US Fed officials believe enough clarity could soon arrive on the inflation front to get back to lowering rates. Citing recent favorable price pressure data, Fed Governor Christopher Waller told CNBC, "If we continue getting numbers like this, it's reasonable to think that possibly rate cuts could happen in the first half of the year."

Waller, who was selected as a Fed governor by Donald Trump and took office in 2020, has also been somewhat skeptical that the trade tariffs envisioned by Trump will drive up inflation in the way many economists reckon. He said, “If, as I expect, tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of appropriate monetary policy.”

With inputs from Bloomberg and Reuters