Donald Trump sees the economy through the lens of a borrower. He does not understand the perspective of lenders, no less the central bank. Trump recently mocked that Federal Reserve Chairman Jerome Powell had “some real mental problems” and is “grossly incompetent.” Treasury Secretary Scott Bessent came forward on Tuesday and said there is a good chance that Powell will step down as chair before the year ends.
“The only thing Scott is blowing it on is the Fed because the Fed — the rates are too high, Scott. And if you don’t get it fixed fast, I’m going to fire your ass, okay?” Trump said at a recent rally. “‘Sir, don’t fire him. Sir, please don’t fire him. He’s got three months to go,’” Trump said, imitating Bessent in a pleading tone. “‘Please, he’s a voice of reason.’”
The Federal Reserve is independent of Washington. Trump would have fired Powell years ago if he had the authority. They attempted to pin the expensive new Fed headquarters as a foul on Powell’s part, but it’s clear they don’t have a leg to stand on. The only possible way Trump could push Powell out would be if he conducted a Marjorie Taylor Greene-style attack and forced his resignation. Powell has been battling it out with Trump since 2018—he could hang on for three more months.
Trump, unfortunately, does not understand that lower rates do not equate to a booming economy. I met with the Treasury in 1981, when I was new to the game and naive about government. They had raised rates to around 14% and I explained that they were looking at doubling the national debt. “Yes Marty, but we will be paying it back with cheaper dollars.” They simply do not understand how the global economy functions and are unwilling to listen.
Interest rates are not going to significantly drop, no matter how much Trump screams and yells. When you have a sovereign debt crisis on the horizon, coupled with war, rates tend to rise.