Trump wants to see lower interest rates. Due to economic and policy constraints that isn’t something the Powell is well positioned to deliver.
President Trump continues to aggressively criticize Jerome Powell, the Federal Reserve Chair whom he nominated to succeed Janet Yellen in 2018. However, despite Trump’s repeated recent push for lower interest rates it’s unclear that it’s within the scope or ability of the Fed Chair to cut the overall interest expense on the national debt.Increasing U.S. Government Debt
The U.S. government debt has doubled in Gross Domestic Product terms from 60% before the Great Financial Crisis to 120% today according to FRED data. U.S. government borrowing now stands at about $36 trillion in absolute terms.
As a result, the cost of simply servicing the national debt is now similar to the entire U.S. Medicare or defense budget. These are very large costs. President Trump’s logic is clear, bringing down interest rates would help save money on debt costs. That, in turn, would help balance the budget.Markets and Mandates
However, there are two catches. First the overall interest rate on overall government debt depends far more on market forces, not on the very short-term Federal Funds rate that the FOMC sets eight times a year. Those market forces typically matter far more for interest rates than the Federal Funds rate.
Second, achieving low interest rates is not part of the FOMC’s mandate as defined under Section 2A of the Federal Reserve Act. The FOMC is focused on the goals of price stability and full employment together with moderate long-term interest rates.
