Trump Demands Fed Rethink Monetary Policy

On August 1st, U.S. President Donald Trump launched another critique against Federal Reserve Chairman Jerome Powell, urging immediate intervention by the Federal Reserve. Through a post on Truth Social, Trump criticized the maintained interest rate policy of 4.25-4.50, asserting that the board should intervene if Powell fails to lower rates. Powell’s cautious remarks during the Federal Open Market Committee (FOMC) meeting on July 30th indicated a careful analysis of economic indicators, with inflation goals still unachieved.

Why Does Trump Keep Prodding the Fed?

Federal Reserve officials, after the FOMC meeting on July 30th, chose to hold off on cutting interest rates, citing price pressures linked to tariffs. Powell, addressing the media, mentioned a strategic approach while awaiting clearer economic signals ahead of a potential rate cut in the September meeting. Trump, meanwhile, calls for swift measures to benefit U.S. debtors, contrasting the Fed’s actions with Europe’s frequent rate reductions.

Can Fed Still Maintain Independence?

Trump’s remarks echo earlier calls for Fed action on July 23rd but with intensified urgency. Two Fed members advocated for immediate rate reductions, highlighting internal disagreements, yet Powell maintains majority support. Under the Federal Reserve Act, rate decisions are collectively determined by a board of seven members and five regional presidents, complicating Trump’s push for “Board control.” The potential for reform discussions, focusing on the Fed’s price stability-employment mandate, could gain momentum in Congress with persistent pressure.

Experts comment that Trump’s statements may heighten political pressures on the Fed, although altering the interest rate path without replacing Powell remains unlikely. Despite challenges, Powell promotes institutional independence, emphasizing its significance against external pressures.

Market projections for a 25 basis point cut in September dropped from 58% to 39.2% according to FedWatch, due to Powell’s press conference insights. The yield curve’s flattening led to a 20-basis-point increase in mortgage rates. Though the S&P 500 saw minimal decline, Powell’s comments alongside Trump’s tariff strategies on July 31st spurred downturns in global markets, including cryptocurrencies.

Bitcoin (BTC) decreased by 3.23%, falling to $114,705, as Ethereum (ETH), a key driver in the altcoin market, plunged by 6.31% to $3,600 within 24 hours. Investors are keenly observing the forthcoming employment and inflation metrics for August to evaluate potential shifts.

Current events bring forth critical takeaways:

• The Federal Reserve’s strategic patience in monetary policy sparks varied reactions.
• Political pressures on financial institutions can shift market expectations.
• Cryptocurrency markets demonstrate sensitivity to macroeconomic factors.

Economic signals remain crucial as stakeholders anticipate further data, reflecting the dynamic interplay between policy decisions and market movements. Investors and analysts await the upcoming employment and inflation releases with high interest.