Trump publicly commented on the Federal Reserve's policy, demanding an immediate cut in interest rates.

On Thursday, President Trump made his first public comments on Federal Reserve policy, calling for a reduction in interest rates. In an online speech at the Davos World Economic Forum, he stated, "I'm asking for rates to come down immediately. And, the global rates should also come down, rates should follow us." However, Trump's pressure may not significantly impact borrowing costs. The President has limited ability to pressure Federal Reserve officials or replace them. Although the Fed has already cut rates by 1 percentage point in the last four months of 2024, further cuts seem to be on hold for now. Fed officials have stated that the current economic and employment situation remains resilient, and inflation has not significantly declined, therefore there is no immediate urgency to cut rates. According to forecasts from Fed policymakers, rates may decrease slightly by the end of 2025, but the magnitude will not be significant. Rate futures markets on Thursday priced in a 25% chance of a rate cut in 2025. The median forecast of policymakers suggests a 0.5 percentage point cut in 2025 and another 0.5 percentage point cut in 2026. To achieve a rate cut, inflation would need to show a downward trend. The Fed has emphasized its "data-dependent" stance, meaning policy decisions will be based on economic data performance. Additionally, Trump's policy proposals (including immigration, trade, tax, and deregulation) may stimulate economic growth and inflation, further weakening reasons for rate cuts. In the past year, interest rates in most developed countries have been falling, with Japan being the exception. Inflation in these countries has fallen to pre-pandemic levels, but economic growth has been generally weak. However, Trump's influence over foreign central banks is much lower than his influence over the Federal Reserve. Trump's comments on the Fed and monetary policy are not new. During his first term, Trump publicly criticized Fed Chairman Powell, whom he nominated, multiple times and discussed the possibility of removing him from office. In the 2024 presidential election, Trump stated that he would not seek to dismiss Powell before his term ends in May 2026. Unlike recent presidents, Trump has taken a more aggressive stance towards the Fed. President Biden has hardly made any public comments on the Fed during his term. Powell stated in July last year that he had not spoken with President Biden in over two years. Powell believes that the Fed's independence is a crucial part of its responsibilities. In September last year, he stated, "Isolating the central bank from direct political control can prevent unfair monetary policy in favor of the current government. Our duty is to serve all Americans, not a politician or a specific issue." Trump's ability to influence Fed policy through appointments is also limited. The Federal Open Market Committee (FOMC) of the Fed is a decentralized institution, comprising 7 members of the Fed Board of Governors and 12 regional Federal Reserve Bank presidents, of which only 5 have voting rights. Regional Reserve Bank presidents are elected by their respective boards, independent of presidential or congressional influence. Although the President has the power to nominate Fed Board members, removing them is difficult. According to the 1913 Federal Reserve Act, a member of the Board can only be removed for "cause." Powell stated in November 2024 that even if Trump asked him to resign, he would refuse. When asked whether the President had the power to fire or demote the Fed Chair, Powell stated unequivocally that "the law does not allow it." In addition, the Trump administration may face some vacancies in the Fed. Vice Chair for Supervision, Randal Quarles, plans to step down from his regulatory position in late February 2025, but will continue to serve as a Governor. Vice Chair for Monetary Policy, Richard Clarida, is scheduled to end his term in 2026. Only one Governor's term, Adriana Cullar, will expire in 2026 over the next four years. Whether Trump attempts to push Powell out early or not, speculation about his next Chair nomination will continue to heat up. Any nomination would require Senate approval. Considering some of Trump's unconventional nominations during his first term faced bipartisan opposition, the outcome of future nominations remains uncertain. Next Tuesday, the Federal Open Market Committee will convene for a two-day policy meeting. Trump's potential impact on the economy will undoubtedly be a key topic of discussion, but his requests may be disregarded.