And it might not for months.
No president has the direct power to reducemortgage rates, credit card APRs or business loan rates.
In reality, economic data plays the starring role here.
Here’s a breakdown of what Trump can and can’t do regarding interest rates and the Fed.
Who actually sets interest rates?
The Federal Reserve sets the federal funds rate, which banks pay to borrow money overnight.
To understand how this works in practice, think back to the early days of the COVID-19 pandemic.
What relationship does the Fed have with Congress?
The Federal Reservewas created by Congress in 1913.
The president’s primary power is to appoint the Fed chair and other board members.
Presidents often appoint Fed board members who align with their worldviews.
In theory, Trump could push for changes to the Federal Reserve Act through a Republican-controlled Congress.
Fed chairs can only be removed “for cause,” such as misconduct or malfeasance.
Voice concern over monetary policy by publicly criticizing actions of the Fed.
Directly set interest rates for the country or for banking institutions.
Does Trump have power over the Federal Reserve?
In 2018, during his first administration,Trump appointedcurrent Fed Chair Jerome Powell.
Two years later,Trump called him the “enemy.”
At the same time, presidents do have unofficial power over the Fed through the bully pulpit.
Is the Fed politically independent?
In theory, the Fed is independent.
These all work to allow the Fed some autonomy and protect it from the whims of political leaders.
But ultimately, the Fed operates in the middle of the political system.
“It cannot be hermetically sealed,” Binder said.
How will Trump’s policies impact interest rate cuts?
Experts say it’s unlikely Trump’s broader economic policies would lead to faster or deeper interest rate reductions.
In fact, most economists predict they’ll have the opposite effect.
Perhaps Trump’s biggest impact on rates is the sheer uncertainty he inspires, which can rattle financial markets.
