President Donald Trump is calling on the Federal Reserve to cut interest rates to 1%, a move he says would ease federal borrowing costs and stimulate growth. However, economists warn such an aggressive cut could destabilize the economy and reignite inflation.
"We need a 1% rate. The Fed is killing growth," Trump said during a campaign rally in Michigan on Monday.
The current federal funds rate sits at 5.25–5.50%, held steady by the Fed to combat inflation and avoid overheating the economy. A shift to 1% would mark the most dramatic monetary loosening since the COVID-19 crisis.
Economists Caution Against Panic Move
As reported by Reuters, Trump's proposal was met with skepticism from leading economists.
"Slashing rates that aggressively would be seen as a panic move," said Diane Swonk, Chief Economist at KPMG. "It would signal the Fed sees a severe downturn ahead, even if that's not the case."
According to Yahoo Finance, business leaders are already warning that Trump's other proposed economic measures—particularly new tariffs—could fuel inflation, even if interest rates are slashed.
Economists note that inflationary pressures remain persistent, especially in housing and energy. Lowering rates too quickly could send the wrong signal to markets and drive volatility in the bond market and U.S. dollar.
Debt Pressure and Political Calculations
The push comes as federal debt servicing costs approach historic levels. As noted by Reuters, a 1% rate could ease short-term interest payments on the national debt—but might spark long-term instability.
Across the Atlantic, concerns are growing. According to The Guardian, EU Trade Commissioner Maroš Šefčovič warned that Trump's broader policy package, including proposed tariffs of up to 30%, could "eliminate" transatlantic trade as we know it.
Fed Independence in the Spotlight
The Federal Reserve, led by Chair Jerome Powell, has repeatedly stated its independence from political influence. The next FOMC policy meeting is scheduled for July 30–31, with most analysts expecting the Fed to hold rates steady.
But the pressure is mounting. As reported by Fortune, market participants are now watching closely for signs of political influence over Fed decisions, especially as the new administration begins to shape its economic agenda.
