U.S. President-elect Donald Trump campaigned on the promise that his policies would reduce high borrowing costs and lighten the financial burden on American households.
Christopher Rugaber, The Associated PressMarket strategist Jim Thorne explains why he believes Trump's second term will be vastly economically different than his first.
Trump’s attacks on the Fed raised widespread concern about political interference in the Fed’s policymaking. The Fed would likely respond by slowing or stopping its rate cuts, thereby thwarting Trump’s promises of lower borrowing rates. The central bank might even raise rates if inflation worsened. An example occurred this year. The 10-year yield fell in late summer in anticipation of a Fed rate cut. Yet once the first rate cut occurred on Sept. 18, longer term rates didn’t fall. Instead, they began to rise again, partly in anticipation of faster economic growth.
Political leaders have typically wanted central banks to do the opposite: Keep rates low to support the economy and the job market, especially before an election. Research has found that countries with independent central banks generally enjoy lower inflation. Most experts think Powell would prevail in the courts. And from the Trump administration’s perspective, such a fight might not be worth it. Powell’s term ends in May 2026, when the White House could nominate a new chair.
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