Posted on 01/23/2025 9:24:22 AM PST by Miami Rebel
President Donald Trump said Thursday he would apply pressure for interest rates to fall, paving the way for a possible confrontation with the Federal Reserve as its first rate decision of the year approaches.
Speaking at the World Economic Forum in Davos, Trump told an assembly of global leaders that interest rates both in the US and internationally were too high and that he would call for an instant move toward lower rates.
“I’ll demand that interest rates drop immediately,” he said. “And likewise, they should be dropping all over the world. Interest rates should follow us all over.”
Trump said during last year’s presidential campaign that he believed he should get a say in interest rate decisions as president and said the Fed’s chair Jerome Powell has “gotten it wrong a lot” on rate calls.
The Fed is due to announce its first decision on interest rates of the year next week (January 28-29), with market expectations for multiple rate cuts in 2025 scaled back to just one – and Fed governor Michelle Bowman said its December rate drop marked the “last step” in its “policy recalibration,” suggesting the central bank could be about to hit pause.
Trump, who appointed Powell, has clashed with the Fed chair and compared him to a “golfer who couldn’t putt.” Powell, for his part, quashed speculation in November that he would be fired and said the president removing the Fed chair was “not permitted under the law” and that he wouldn’t leave of his own accord.
Fixed income investors (like me) are entitled to a decent rate of return, and rates, including those for mortgages, are particularly high going back decades.
Interest rates should be decided by the market.
and jeopardize the jobs of the 1000+ economists at the Fed? how heartless! /s
Trump should work with Congress to pass a law allowing Mortgages to be transferrable.
As much as I love Trump, he shouldn’t do that. A mandated max on interest rates for lending institutions would have ripple effects throughout the economy that he doesn’t foresee. What he could do is cut spending, putting less pressure on interest rates from “crowding out” by gov’t. He could also lower tax rates on corporations and the “rich”, which would induce a great flow of lendable capital and decrease corporate demand for external financing.
Trump is wrong on this one. But that’s ok, you can’t be right on everything, and I don’t have to agree with him on everything.
Interest rates at the short maturity end are indeed under Fed control.
At the longer term maturities of years, out to 30 years, the Fed does not control these rates.
To a large extent, neither does the free market.
Nearly every institution in the world, pension funds, mutual funds of all kinds, more or less every trust fund — they have bylaws that require them to have a % of holdings placed in zero risk instruments. These are pretty much always required to be US government instruments. And so since they are required to buy them, this is zero discretion demand for them. Zero discretion is not the stuff of the free marketplace.
The accumulated $37 Trillion in US debt is scattered across maturities. The composite interest rate that defines interest on the national debt is about 3.3% — and growing. It is growing because short term dept is now 4.5% and long term is 4.7%. So as instruments mature, they must be rolled over (replaced) with the same instrument (meaning if a 5 yr note matures, you must buy another to hold the account constant). But the same instrument now has a higher interest rate than it did 5 years ago. And so the 3.3% composite rate rises.
Oh, and a freeper above. There will be no significant tax cuts that are not offset with some other quiet maneuver to avoid an instantaneous revenue fall. Yes, Yes, I know it is popular to believe that tax cuts increase revenue. Whether that is true or not, it doesn’t happen in month 1 or even year 1. We can’t afford to double the deficit in year 1.
I see it more right now, as he’s testing the waters to see what he can get and what he can’t.
The market DOES set the rates. The Fed rate is at best symbolic: banks don’t actually borrow or lend at it. (That’s thanks to post 2008 reforms.)
Thinking this through, to the extent that the Fed DOES have power, however ephemeral, the effect of it influencing the markets would mean that sharp cuts to the fed rate would spur bullishness on the economy....WHICH WOULD LEAD TO HIGHER LONG-TERM RATES, e.g., mortgage rates.
many mortgages are assumable, people just do not realize it.
loans backed by the Federal Housing Administration, U.S. Department of Agriculture and U.S. Department of Veterans Affairs — can qualify as assumable mortgages.
It’s actually very few - I just went through a few months ago, my son and I owned a house and were both on the mortgage - I wanted to take over the mortgage myself as he was buying a new house and all I could do was refi, I could not assume the mortgage. I wasn’t going to refi at 8.5% so we sold the house.
I heard an interesting proposal, which was for Trump to name Powell’s successor in advance—so he could act as the shadow Fed chair who would be giving future guidance that the markets would pay attention to before being given the office.
> Fixed income investors (like me) are entitled to a decent rate of return… <
CD savers/investors get hurt when interest rates drop (obviously).
But if you’re holding longer-term bonds and interest rates drop, the value of those bonds will increase. So there’s that, I suppose.
Watch what the Fed does at the T-bill auction. That’s one way they are manipulating the rates.
Is the economy growing, or is that the Biden admin fudging numbers?
I think that’s a big part of it, and the higher the interest rate, the more the US government has to pay on interest on the debt, I think Trump wants to reduce the deficit.
I’ve noticed that interest rates don’t listen.
True. The good he’s doing far outweighs any mistake he might make on interest rates.
Agreed. What the Fed does with their balance sheet (QE and QT) often has much more effect than their official interest rate decision.
Do away with the federal reserve. Let the free market and competition cotrol the economy.
The bond market will decide.
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