LOS ANGELES.–Picking a fight with 72-year-old Federal Reserve Board Chairman Jerome Powell, 78-year-old President Donald Trump urged the Fed Chairman to cut rates at its May 6,7 meeting.  Trump appointed Powell Fed Chairman Feb. 2, 2018 but has regretted it ever since, blaming Powell for hiking up interest rates before the pandemic and causing U.S. Gross domestic product to drop to around 2%, far lower than Trump has promised at 4%.  So the row between Trump and Powell has gone on for years but only recently heated up with Trump’s tariff’s policy seemed to drive Wall Street into correction mode, now at 38,170 points or 17%, about 7,000 points off its Dec. 4, 2024 record high of 25,014 of Dec. 4, 2024.  Trump sees no reason for Powel not to slash rates now that most economists see the economy slowing down, possibly heading to a recession. Fed watchers see Powell holding rates steady May 7.

            Trump knew that tinkering with tariffs could create some temporary disruptions in financial markets, possibly leading to a slowdown.  “With these costs trending so nicely downward, just what I predicted they would do, there can almost be no inflation, but there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” Trump posted on Truth Social.  Insulting Powell stiffens his stubbornness to hold firm on interest rates, refusing to be bullied to slash rates when Fed decision are supposed to be independent of politics.  Powell has made it political because of his feud with Trump.  There’s no reason, especially inflation, for not lowering interest rates when the stock market is stuck in a bear market correction.  All economic measures show that consumer spending has slowed to the point it threatens deflation.

            Some partisan analysts blamed Trump for the latest sell-off, insisting that Trump feuding with Powell publicly hurts markets.  But what really hurts the stock market is the lack of consumer spending and rise in the unemployment rate.  Powell could easily slash rates May 7 without any concern about fueling inflation.  Consumer sentiment is the lowest since the 2020 pandemic, leaving consumers belt-tightening, reluctant to increase discretionary spending.  Powell’s seven-member board of governors have largely stayed on the same page saying it was premature to start cutting interest rates this soon.  Powell admitted he doesn’t know the extent of harm tariffs have done to the economy, so he’s reluctant to slash rates.  But most economists see the economy shrinking not expanding.  Current Federal Funds Rate is 4.25%-4.5%. far higher than where rates stood during the 2020 pandemic.

            Powell can’t decide what’s worse for the economy the pandemic or Trump’s aggressive moves with tariffs that have caused recent disruptions on Wall Street.  But in any economic downturn, markets welcome the Fed’s rate cuts and the only way to start stimulating consumer spending.  Lowering the Federal funds rates drops the prime interest rate currently at 7.5%.  Lower borrowing costs helps the automotive industry and retail sales in general that welcome lower rates for consumers.  Trump is right to push the Fed to slash rates because he knows the economy needs some stimulus about now. Trump’s tariff policy has thrown the fake news into a feeding frenzy blaming Trump for just about everything.  But trying to level the playing field was always something the Trump promised voters. Now that there’s some temporary pain, Trump sees value in cutting rates.

            Powell has some different tools to decrease the recent sell-off in treasuries, leaving rates too high especially for mortgages.  Some Wall Street watchers see foreign investors bailing out of U.S. equities because of the current volatility.  Wall Street has been the envy of the world for foreign investors wants to park capital in safe investments.  Recent sell-offs have drive some foreign investors out of U.S. markets, leading to the recent decline of the dollar against the euro and Japanese Yen.  Conference Board’s leading economic indicator is down 0,7%, not a recession levels yet but heading in that direction, “pointed to slowing economic activity ahead,” said Justyna Zabinska-La Monica, Conference Board senior adviser.  Pushing Powell to relent on interest rates at the May 7 meeting would be a good step for the economy. Only Powell worries about inflation at this point.

            Trump has done everything possible to push Fed Chairman Powell to cut rates at the May 7 meeting, telling him to overlook any lingering concerns about inflation.  Consumers show  contraction mode, not one of loosening the purse strings to spend into the economy.  Consumers need some good old fashioned stimulus to start spending again, something lower rates would help.  If consumers avoid spending, it won’t matter if Trump tariffs artificially or temporarily inflate prices.  With no one buying, there’s more deflationary pressure now more than for price increases.  Democrats and the fake news blame Trump for trying to wreck the independence of the Federal Reserve Board.  But shouldn’t a president that has his eyes on the economy give his opinion of what would help the economy?  Trump is no ordinary president but a person with considerable economy savvy.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He’s editor of onlineColumnist.com and author of Dodging The Bullet and Operation Charisma.