The Federal Reserve Rightly Rejects Trump’s Calls for Lower Interest Rates
The Federal Open Market Committee (FOMC) of the Federal Reserve announced on Wednesday that the central bank of the United States will hold the federal funds rate between 4.25 percent and 4.50 percent. The Fed’s commitment to tight monetary policy, which reduces inflation by making borrowing more expensive, is sure to draw the ire of President Donald Trump, who has been pressuring Fed Chair Jerome Powell to dramatically lower rates.
The federal funds rate, which the FOMC sets eight times a year, is “the interest rate at which depository institutions trade federal funds…with each other overnight,” explains the St. Louis Federal Reserve. It influences “the rate banks charge their customers with higher credit ratings” and “longer-term interest rates such as mortgages, loans, and savings.”
Trump has long tried to influence the Fed’s decisions. In the early days of the COVID-19 pandemic, the president pressured Powell to implement “the lowest Rate” in the world. The Fed subsequently lowered the federal funds target range from 1.50 percent (upper limit) to 1.75 percent (lower limit), to 0 percent to 0.25 percent in March 2020 and held it there until March 2022.
Maintaining this low rate during “a period of massive fiscal expansion and widespread supply disruptions certainly amplified inflationary pressures,” Peter C. Earle, director of economics and economic freedom at
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