Donald Trump has once again trained his fiscal flamethrower on Jerome Powell, claiming that slashing interest rates to 1-2% would save the U.S. a cool trillion dollars. The former president, never one to understate a case, took to Truth Social to blame Biden for reappointing the Fed Chair and to bemoan the current rate environment.
Look, presidential complaints about monetary policy are hardly new. They're practically a Washington tradition, like cherry blossoms or lobbyist-funded lunches. But Trump's specific claim about saving a trillion dollars deserves some unpacking, if only because debt servicing costs have indeed become a rather massive line item in America's financial ledger.
The U.S. national debt currently stands at around $34 trillion. At current interest rates, the Congressional Budget Office projects interest payments will reach about $870 billion this year and surpass $1 trillion annually by 2026. So Trump's trillion-dollar figure isn't completely conjured from thin air, though it does require some creative accounting and time horizons.
The thing is, Trump's argument rests on a particular model of monetary policy that we might call "rates as pure choice" – the idea that the Federal Reserve could simply decide to set rates at 1-2% without consequences. Which seems, you know, somewhat divorced from the actual mandate of the Fed.
Powell, for his part, has been navigating a complex economic landscape where inflation peaked at 9.1% in June 2022 before gradually retreating to its current level around 3%. The Fed's aggressive rate hikes – bringing the federal funds rate to a 23-year high – were specifically designed to tame that inflation. And they've worked, albeit slowly and with collateral damage to certain sectors.
But here's what makes Trump's complaint particularly interesting: it represents a complete reversal from traditional Republican orthodoxy on monetary policy. For decades, the GOP positioned itself as the party of hard money and inflation hawks. Remember when Republicans would wax poetic about Paul Volcker's courage in crushing inflation with 20% interest rates? I do. The transformation is remarkable – from praising monetary discipline to essentially advocating for what would amount to negative real interest rates.
One model for understanding this shift is what I call "positional monetary politics." When you're out of power, high interest rates become a convenient target – they're slowing growth and hurting regular Americans! When you're in power, they become a sign of economic strength – look at the confidence in our economy! The principles remain conveniently flexible.
The trillion-dollar question here is whether Trump actually believes rates should be at 1-2%, or if this is simply campaign positioning. During his administration, he regularly pressured Powell for lower rates even when the economy was growing steadily – which suggests a genuine preference for cheap money that predates the current political moment.
But let's talk about what would actually happen if Powell took Trump's advice. A sudden drop to 1-2% interest rates while inflation remains above target would likely trigger significant consequences: a weakening dollar, capital outflows, asset bubbles, and potentially a resurgence of inflation. The short-term sugar high might feel good, but the subsequent crash would be, well, not ideal.
A model that I often use for thinking about monetary policy is the "delayed consequence" framework. Monetary policy offers immediate political benefits (lower rates feel good now) but delayed costs (inflation emerges later). This creates a persistent temptation for political interference that the Fed's independence is specifically designed to resist.
I mean, there's a reason we don't have presidents directly setting interest rates. It's the same reason we don't let children determine their own bedtimes and diet – the incentives for short-term gratification would overwhelm long-term stability.
Anyway, as the election approaches, expect more monetary policy sniping from both sides. Biden will claim credit for falling inflation; Trump will argue rates are crushing the economy. Both will conveniently ignore the complex interplay of factors actually driving economic outcomes.
The conventional wisdom is that Fed independence matters. But conventional wisdom isn't on the ballot. And a trillion dollars in purported savings makes for a much better campaign promise than "respecting the traditional boundaries between fiscal and monetary authorities."
Man, I don't know. Markets are mostly shrugging at Trump's comments for now. But if his return to the White House starts looking more likely, Powell might find himself facing the most direct political pressure on a Fed Chair since, well, Powell during Trump's first term.
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