Trump Calls Powell a “numbskull,” Urges Fed Rate Cuts with Vance

TradingKey - On Thursday, June 12, Trump once again heavily criticized Federal Reserve Chair Jerome Powell, urging him to cut interest rates. Trump claimed that a two-percentage-point rate cut could save the U.S. $600 billion in annual interest expenses. 

Expressing his dissatisfaction, Trump stated, “We’re going to spend $600 billion a year, $600 billion because of one numbskull that sits here [and says] ‘I don’t see enough reason to cut the rates now.” 

Trump emphasized that he is not against raising rates, provided that inflation rises. “But it’s down,” he said, “and I may have to force something.”

With Inflation Easing, Trump Calls for a 100 Basis Point Rate Cut

Trump's public opposition to Powell came after the U.S. Labor Department reported that the May Producer Price Index (PPI) rose less than market expectations. 

Prior to this, on Wednesday, June 11, the Labor Department announced that the May Consumer Price Index (CPI) showed a core CPI increase of 2.8% year-on-year and 0.1% month-on-month, both below market expectations. 

These figures eased concerns over soaring inflation, further justifying the Trump administration's pressure on the Fed for rate cuts.

Trump posted on his social media platform, Truth Social, stating that the CPI figures are "good numbers," and that the Fed should cut rates by a full percentage point (100 basis points). Vice President Vance echoed this sentiment on social media platform X, criticizing the Fed's refusal to cut rates as a failure in monetary policy. 

Commerce Secretary Howard Lutnick criticized Powell's inaction, stating that if the Fed were to cut rates, it would save the U.S. significant expenses.

Trump Applies Pressure, But Markets Expect Fed to Disobey

Despite the Trump administration's repeated pressure on the Fed to cut rates, the market's reaction has been somewhat lukewarm. According to CME Group data, as of Thursday, traders generally expect the Fed to hold steady during its June and July meetings. In contrast, the likelihood of a rate cut in September is higher, currently at 76%.

However, analysts note that by the time Powell's term ends in May 2026, the standoff between the Trump administration and the Fed could conclude. They suggest that the next chair, whoever it may be, might lean towards lowering rates. Some experts, however, believe that a significant rate cut is unlikely.

Sarah Binder, a senior fellow at the Brookings Institution and a political science professor at George Washington University, pointed out that the bond market strongly constrains both the Fed and the president. If there is an explicit commitment to cut rates regardless of economic or inflation conditions, the market could quickly react negatively.

Additionally, analysts suggest that while a rate cut might temporarily boost U.S. stocks, it could reduce the attractiveness of U.S. assets in the long term, adversely affecting the dollar and U.S. Treasuries.