Trump demands Fed cut rates, claims better monetary policy understanding
55th annual World Economic Forum (WEF) meeting in Davos · Reuters

By Michael S. Derby and Dan Burns

(Reuters) -U.S. President Donald Trump on Thursday said he wants the Federal Reserve to cut interest rates at a time the central bank has hit pause for an uncertain duration, arguing he understands monetary policy better than those charged with setting it.

"With oil prices going down, I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world," Trump told the World Economic Forum on Thursday in Davos, Switzerland.

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 Federal Reserve Chairman Jerome Powell, who Trump appointed as Fed leader in his first stint as president.

Trump's remarks come five days before the Fed's first policy meeting to be held during his administration - on Jan. 28 and 29 - with very broad expectations officials will leave rates unchanged.

The Fed last cut its overnight interest rate target by a quarter percentage point at its December policy meeting to between 4.25% and 4.5%.

For all of 2024, the Fed lowered rates by a full percentage point amid easing inflation pressures and a sense among Fed officials that they wanted monetary policy to exert less restraint on the economy's momentum. The December meeting also saw officials trim estimates of cuts in 2025 amid expectations of higher levels of inflation and slightly better growth.

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. The Fed, which does not have to follow any instructions from the president, did not immediately respond to a request for comment.

POLICY UNCERTAINTY

A number of Fed officials, including Powell, have already expressed a need for caution about lowering rates further because of sticky inflation. Several policymakers had made an effort to take potential Trump policies into account in new forecasts issued at the December policy meeting. Lowering rates when inflation is still above the Fed's 2% target could prompt price pressures to worsen rather than improve.

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