Trump vs. the Fed: Why the President Can’t Force Interest Rates to Drop
With the frustration of many years of frustration with American families High loan feePresident Donald Trump took a bold commitment Reduce interest ratesEssence Last week, he I have excavated in the Federal ReserveSaid: “I will ask the interest rate to decline immediately.”
Except for almost no chance, the Fed’s formulation agency will reduce interest rates on Wednesday. And it may not be a few months.
As inflation seems to relax steadily, the central bank of the country gradually reduced its benchmark interest rate last year. However, there are too many uncertainties and small urgency, especially with the increase in inflation pressure and the seemingly tough labor market, the Federal Reserve has been reduced for the fourth consecutive time at this week’s conference.
Although Trump will be able to appoint the new Fed Chairman in 2026, he is unable to develop monetary policy or change federal capital interest rates. No president can directly reduce Mortgage rateCredit card APR or business loan ratio.
In fact, economic data plays the protagonist here. If inflation is controlled (ideally runs at a rate of 2 % per year), otherwise the employment market will become significantly weaker, the Fed will have the task of reducing interest rates. In view of the current appearance, most economists can not predict interest rates until May or June.
This is the subdivision of Trump’s things that cannot be done in interest rates and the Fed.
Who actually sets interest rates?
The Fed set the federal capital interest rate, and the bank paid the borrowing overnight. This benchmark interest rate affects the interest rates from banks and loan customers from all matters from credit cards to family and car loans.
according to Peter C. Earle, Peter C. Earle, Senior economist of the American Institute of Economics.
To understand the way of working in practice, please think about the early period of Covid-19-19. When the economy spreads in 2020, The Fed drops interest rates to zeroI hope to encourage expenditure and investment when people and enterprises are hesitant. Then, when the economy rebounded two years later, The Fed increases interest rates to domesticate rapid inflationEssence
What is the relationship between the Federal Reserve and Congress?
Fed It was created by Congress in 1913Essence Congress can modify the Federal Reserve Law to change the Fed’s operation method, but the president cannot. The main power of the president is to appoint the Fed Chairman and other members of the board.
Presidents often appoint members of the Federal Reserve board of directors who maintain the same view of the world. However, the appointment is staggered, so no one can completely reshape the Fed.
Theoretically, Trump can promote the change of the Federal Reserve Act for Congress controlled by the Republican Party. However, Binder said that any amendment to the rules of the Federal Reserve will require a 60 -vote bipartisan alliance to pass the Senate.
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What can the president do |
President can’t do whatever |
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In 2026, he appointed the new Federal Reserve Chairman (and usually appointed a member of the board of directors of the Federal Reserve Chairman when its terms expire) |
The Federal Reserve chair is fired through simple differences. Feeding chairs can only be “for reasons”, such as improper behavior or malfeasance. |
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Publicly criticized the Fed’s actions to pay attention to monetary policy. |
Set the interest rate of the country or banking institutions directly. |
Is Trump’s power to the Fed?
In 2018, during his first government period, Trump appointed The current Federal Reserve chair Jerome Powell. Two years later, Trump calls him “enemyPowell replied: “When asked if it could be fired or degraded by the Federal Reserve Chairman or the Governor of the Federal Reserve in November in November,” is not allowed according to the law. ”
The president was just because of the difference in policy or frustration of interest rate decisions, and the president could not delete his term before the end of his term. According to Earle, members of the Federal Reserve Commission can only be dismissed for “reason”, that is, the inappropriate behavior proved to the facts, malfeasance or power.
At the same time, the president does have informal power through the Federal Reserve on the Bullet. As we all know, when the economy is not good, some presidents already know that some presidents will oppose the Federal Reserve and forcing them to take action. Trump threatened the Federal Reserve chair in March 2020 when the economy crashed, and this pressure was given again during the second term.
Is the Fed’s independence politically?
Theoretically, the Federal Reserve is independent. However, in practice, according to El, such a entity is almost impossible to surpass politics like the Federal Reserve.
The Fed has several structures that areolate it from the external influence: for example, the lengthy clauses of members of the board of directors, the scheduled schedule of the intercourse, and the prediction of deletion of the reasons for reasons. These are all the whimsicals that make the Fed’s autonomy and protect them from political leaders. But in the end, the Fed operated in the middle of the political system.
Bingde said, “It cannot be sealed.”
How will Trump’s policy affect interest rates?
Experts say Trump’s wider economic policy is unlikely to cause faster or deeper interest rates. In fact, most economists predict that they will have the opposite effect.
Based on Trump’s proposal to levy tariffs on foreign imports, it may lead to more inflation, and then this may promote the Federal Reserve to raise interest rates again. Dean BakerSenior Economist at Economic Policy and Research Center.
The biggest impact of Trump’s rate of rates may be the purity of his inspiration, which may make the financial market sound. His freestyle declaration and execution command shake investors, and they are not sure which direction he will adopt or the law he will receive.
Trump’s request to control the Federal Reserve’s request, whether he can follow, will only bring more instability to mixing.
