US President Donald Trump has called for interest rates to be lowered, but his policies may exacerbate inflation and hinder the Federal Reserve’s ability to act.
Last week, Trump said he would demand lower interest rates “immediately” at the World Economic Forum. He attributed high inflation to the Fed’s failure to address it and vowed to use his economic powers to reduce prices through increased energy production, reduced regulation, and rebalanced trade policies.
However, economists warn that these plans could stoke inflation, which Trump has struggled with in his first term despite implementing tariffs without a significant increase in inflation. This time around, forecasters are more concerned about a resurgence of inflation under Trump’s second term.
The Fed is already working with a strong economy, and lowering rates risks stoking fresh inflationary pressures. Bond yields have spiked ahead of Trump’s inauguration, indicating investors anticipate higher interest rates due to inflation risks tied to his economic plans.
Investors now price in only an 82% chance the Fed will keep rates level in March, up from a 48% chance a month ago. Markets question whether Trump’s attempts to influence rate decisions may erode the Fed’s independence.
Source: https://www.businessinsider.com/interest-rates-trump-inflation-fed-rates-tariffs-outlook-powell-2025-1