Trump's visit to Fed is latest twist in feud over interest rates that has long history
President Donald Trump’s visit to the Federal Reserve on July 24 marks the latest turn in his increasingly vitriolic campaign to pressure Fed Chair Jerome Powell into cutting interest rates or resigning.
For months, Trump has berated the Fed chief for his wait-and-see approach to lowering the central bank’s key rate, calling him a “numbskull,” a “moron,” and his customized moniker – "Too Late" - among other derogatory epithets, and hinting he was considering firing him.
The attacks came from new quarters earlier this month, with Office of Management and Budget Director Russell Vought saying Powell has “grossly mismanaged the Fed” and misled Congress about an “ostentatious” renovation of its headquarters in Washington.
How much does the Fed's building renovation cost?
The project’s original cost was pegged at $1.9 billion but cost overruns pushed it to $2.5 billion. Trump has accused Powell of potential fraud that could be grounds to remove him, though he backed off the threat last week. Powell has said he can only be fired for cause.
During testimony before the Senate Banking Committee, Powell called some of the descriptions of the remodeling “misleading and inaccurate.”
In a video of Trump and Powell touring the construction site in the late afternoon of July 24, Trump initially said, "They're basically building basements where they didn't exist. A lot of very expensive work, no question about it."
Then, however, the world’s most powerful man and its most influential monetary policymaker, both clad in hard hats, quibbled over the renovation’s price tag.
“It looks like it's about $3.1 billion,” Trump said as Powell shook his head in disagreement. “It went up a little… or a lot.”
"I'm not aware of that," Powell said tersely. “I haven’t heard that from anyone at the Fed."
Powell then perused a document detailing the costs and said, "You just added a third building.”
“It’s part of the overall work,” Trump responded.
“It’s not new,” Powell said, noting it was completed five years ago.
Asked by a reporter if there’s anything Powell could say that would make him back off his previous criticisms, Trump said, “Well I’d love him to lower interest rates,” while slapping Powell convivially in the back as the Fed chair giggled. “Other than that, what can I tell you?”
Later, in response to a reporter's question, Trump said he wasn't planning to fire Powell.
“To do that is a big move and I just don't think it's necessary,” Trump said. “And I believe he’s going to do the right thing… It may be a little too late, as the expression goes, but I believe he's going to do the right thing.”
Why has Trump criticized Powell?
During his first term, Trump repeatedly lambasted the Fed chair for failing to slash rates quickly and aggressively enough, but his offensive has been far more strident in his current tenure.
In January, just days after his inauguration, Trump said in a video appearance at the World Economic Forum in Switzerland that Saudi Arabia and OPEC should take steps to lower oil prices.
“With oil prices going down, I'll demand that interest rates drop immediately,” Trump said, suggesting that lower crude prices would mean softer inflation that would give the Fed leeway to lower rates.
Asked about his remarks later in the Oval Office, the president said, “I think I know interest rates much better than (Fed officials) do.
“And I think I know it's certainly much better than the one who's primarily in charge of making that decision,” he added, alluding to Powell.
In April, after Powell warned that Trump’s tariffs likely would push up inflation, making it tougher for the Fed to chop rates, the President told reporters that Powell’s “termination cannot come fast enough!"
“I’m not happy with him… if I want him out, he’ll be out of there real fast, believe me," Trump told during a White House event.
Trump further pressed his case at a late May meeting he requested with Powell at the White House, but the Fed chief repeated that officials wouldn’t take politics into account in setting monetary policy, according to a Fed statement and the White House press secretary.
Days later, after a weak report on private-sector job growth by payroll processor ADP, Trump said in a post on Truth Social. "'Too Late' Powell must now LOWER THE RATE. He is unbelievable!!! Europe has lowered NINE TIMES!"
The following week, after a report showed inflation easing, Trump called Powell “a numbskull,” but said he wouldn’t try to dismiss him.“We can’t get this guy to do it," Trump told reporters about his pleas to drop rates. "And the fake news is saying 'Oh if you fired him it would be so bad.' I don’t know why it would be so bad, but I’m not going to fire him.”
Trump tried another tack on June 30, saying the Fed’s refusal to slice rates was costing the federal government nearly $1 trillion in interest on its debt.
On his Truth Social site, Trump shared a handwritten note he wrote to Powell. “You are, as usual, ‘Too Late,” he wrote. “You have cost the USA a fortune and continue to do so. You should lower the interest rate by a lot! Hundreds of billions of dollars being lost! No inflation.”
Attaching a list of central bank interest rates, Trump drew two arrows pointing to a rate between Japan’s 0.5% and the 1.75% shared by Denmark, Seychelles and Thailand. That suggested Trump thinks the Fed should chop its key short term interest rate by a whopping 3 percentage points or so, from a range of 4.25% to 4.5% to about 1.25%.
Economists previously told Paste BN lower rates would reduce the government’s borrowing costs but the $900 billion figure was likely exaggerated.
Who controls the Fed?
The Fed was established as an independent agency so its decisions about interest rates would be based on what’s best for the economy and insulated from politics. Forecasters have said that if Powell acquiesced to Trump’s demands and lowered rates without a sound basis, the move would erode confidence in the Fed’s autonomy and push up long-term rates, such as for mortgages, because investors would worry about hotter inflation.
Also, Powell alone doesn't control rates, which are set by the Fed's policymaking committee, though he can influence other panel members.
Asked at a European Central Bank forum several weeks ago if he's bothered by Trump's criticisms, Powell said, "I'm very focused on just doing my job."
It's not unprecedented for U.S. presidents to push for lower interest rates boost the economy. But no president has tried to bully a Fed chief as persistently and overtly.
Trump appointed Powell to be Fed chief in November 2018, but quickly soured on his choice.
In August 2018, Fed officials were raising rates to a more historically normal level after years of near-zero rates following the 2008 financial crisis. Trump told wealthy donors he thought Powell favored “cheap money,” and was dismayed to see him embrace rate hikes, according to the Wall Street Journal and Bloomberg
Several months later, trump told the Washington Post he was “not even a little bit happy” with his pick of Powell.
“I'm doing deals, and I'm not being accommodated by the Fed,” Trump told the Post. “They're making a mistake because I have a gut and my gut tells me more sometimes than anybody else's brain can ever tell me.”
In early 2019, The Fed had stopped raising rates but wasn't yet cutting.
“We have the potential to grow up like a rocket ship if we did some lowering of rates,” in addition to resuming bond purchases to bring down long term rates, Trump posted to social media at the time.