Trump (Again) Demands More Easy Money To Help Fund Even Bigger Deficits
The Federal Reserve’s Federal Open Market Committee (FOMC) meets this week and is expected to keep its target policy interest rate (the federal funds rate) unchanged at 4.5 percent.
This is unlikely to please Donald Trump who has repeatedly pushed Fed Chairman Jerome Powell and the FOMC to adopt a lower target interest rate and further force down interest rates on federal debt. Moreover, Trump has signaled that he wants the US central bank to be more like the European Central Bank which has been more aggressively forcing down interest rates in recent months.
Trump Wants More Easy Money from the Fed
Last week, Trump met with Powell and called Powell a “numbskull” for not forcing down interest rates enough to suit Trump’s personal whims. But the messaging this time was a little different. In the past, Trump has tended to demand lower interest rates for purposes of monetary stimulus. This time, Trump is openly admitting that he wants lower interest rates to make federal debt cheaper. NBC reported last week:
President Donald Trump ripped Federal Reserve Chair Jerome Powell as a “numbskull” on Thursday as he turned up the heat on the central bank chief to lower interest rates.
Trump claimed at the White House that lowering rates by 2 percentage points would save the U.S. $600 billion per year, “but we can’t get this guy to do it.”
“We’re going to spend $600 billion a year, $600 billion because of one numbskull that sits here [and says] ‘I don’t see enough reason to cut the rates now,’” Trump said.
Trump added that he was OK with the Fed raising rates if inflation was going up.
“But it’s down,” he said, “and I may have to force something.”
Here Trump states that his primary purpose for demanding lower interest rates is to bring down borrowing costs. Naturally, Trump, who continues to push for ever larger multi-trillion-dollar deficits, wants to be able to borrow more cheaply, thus freeing up federal dollars so Trump can reward key interest groups with taxpayer money. It’s easy to see why Trump is concerned about this. The Federal government’s interest expenses have ballooned in recent years as the federal debt has soared and as the average interest rate on the debt has nearly doubled since 2021. 2025’s fiscal year will likely be another year in which the US pays more than a trillion dollars just in debt service:
Source: FiscalData.Treasury.gov.
Trump, however, fails to mention that the process of bringing down interest rates on federal debt usually requires the fed to purchase Treasurys with newly created money. What Trump is really saying is “I want more devaluation of the dollar so I can have bigger deficits.”
Trump then wrongly claims that inflation “is down.” In this, Trump is either lying or is bad at basic arithmetic. “Inflation”—by which he presumably means price inflation—is not down. In fact, it’s still higher than the Fed’s arbitrary two-percent target. Moreover, the consumer price index is up by 24 percent since early 2020. And, of course, monetary inflation is up by about 35 percent in that time. Nowhere—except, apparently, in Donald Trump’s mind—is inflation “down.” Unfortunately, Trump shows no interest in pursuing the solution to inflation, which is deflation. Indeed, what the economy needs is price deflation—fueled by monetary deflation. But, this will be quite impossible under Trump’s regime on runaway fiscal deficits and ongoi
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