Trump's Demands to Federal Reserve fell on Deaf Ears

Trump demands interest rates of 1% or less after Fed raises rates for first time since 2023

President Donald Trump fired back at the Federal Reserve within hours of its first rate hike in three years, posting on Truth Social that U.S. interest rates "should be 1%, or less", a demand that would require slashing the benchmark rate by nearly three full percentage points.

The Federal Reserve on Wednesday unanimously voted to raise the federal funds rate by a quarter of a percentage point, lifting it to a range of 3.75% to 4.00%. The move reversed course after multiple rounds of rate cuts in late 2024 and 2025, when the central bank had worried about a slowing economy and a weakening labor market. Fed Chairman Kevin Warsh, who was sworn into the post in May, said the hike "comes at a time when the economy appears to be strengthening."

Trump did not see it that way. In a post on Truth Social, the president argued that America's creditworthiness and booming investment climate justified rates far below where the Fed just set them.

"Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World, BY FAR. Our Country is BOOMING with new Investment! If we stopped Trading with every country that we have a Deficit with, which is most of them, we would make, at least, 1.5 Trillion Dollars a year."

He followed up by calling trade deficits "nothing more than a fancy word for LOSS" and demanded the Fed act immediately.

"We are 'carrying' almost every country in the World, and that cannot go on any longer. LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!"

The unanimous vote matters. Every member of the rate-setting committee backed the quarter-point increase. There was no dissent for Trump to point to, no internal split to exploit. The Fed spoke with one voice, and that voice said inflation, not the president's preference, would set the direction of monetary policy.

Whether Warsh can hold that line under sustained presidential pressure will be the question that defines his tenure. The Fed's independence is only as strong as the chairman willing to defend it, and the president just made clear he expects results, not explanations.

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The Federal Reserve' s Shadow Government

Powell’s shadow Fed majority could threaten jobs, housing and growth

Jay Powell lost the chairmanship. He may still control the reaction function

PETER NAVARRO: Kevin Warsh has now been sworn in as the new Federal Reserve chair. Outgoing Chair Jerome Powell has refused to leave the Fed Board of Governors, breaking with the modern custom that departing Fed chairs leave the Board rather than linger as rival power centers.

The clear danger: Powell will have enough board support to act as Fed shadow chair and force a series of rate hikes down Warsh’s throat.

Never mind that even a single rate hike would be the worst possible response to an oil-price shock. Never mind that two of Jay Powell’s predecessors understood the difference between demand inflation and an oil shock.

When Iraq invaded Kuwait in 1990, Alan Greenspan understood that an oil shock can both raise headline inflation and damage growth. His FOMC repeatedly cut the federal-funds rate as the economy weakened.

When oil, foodstuffs, fertilizers and industrial metals all moved sharply higher in 2008 — driven by booming emerging-market demand, constrained supply, thin spare capacity and speculative flows — Ben Bernanke’s Fed likewise cut the federal-funds rate in April. He then held steady in June and refused to launch a recessionary rate-hike campaign into prices the Fed could not drill, refine, mine, plant or ship away.

That is the looming central error. The Fed cannot produce one extra barrel of oil. It cannot reopen a shipping lane. It cannot refine gasoline. It cannot lower diesel costs by crushing mortgage demand in Ohio or forcing a small manufacturer in Pennsylvania to roll over credit at punitive rates.

A Fed rate hike now would rein in demand in response to a supply shock and hit precisely where the economy is already vulnerable. Housing would weaken further. Interest-sensitive manufacturing would suffer.

Small-business credit would tighten. Financial conditions would tighten just as energy prices are eating real incomes. The dollar could strengthen, pressuring exporters.

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