President Donald Trump set acceptance of a policy to cut interest rates when the market is booming as a condition for appointing the next Federal Reserve (Fed) chair. It is a direct challenge to Central Bank independence that raises rates out of concern about inflation.
On the 23rd, President Trump announced the so-called Trump Rule on the social media platform Truth Social, putting strong pressure on the Central Bank. Citing the recent trend of stock prices falling even when good news hits the stock market, he argued this is because Wall Street investment strategies are working differently than in the past. President Trump noted, "In the past, when there was good news, the market rose, but these days prices fall instead because people think rates will be raised immediately due to inflation concerns."
According to Commerce Department data released that day, the U.S. real gross domestic product (GDP) growth rate for the third quarter was an annualized 4.3%. That far exceeded the expert forecast of 2.5%. The Trump administration called the result a victory achieved by the economic policies he leads. At the same time, President Trump expressed dissatisfaction that such economic growth soon leads to rate hikes.
President Trump said, "It is not a strong market that causes inflation; foolishness causes price increases," and stressed, "The next Fed chair must cut rates when the market is doing well and must not destroy the market for no reason." In particular, he nailed down that "anyone who does not agree with my view can never become Fed chair," making clear that acceptance of rate cuts is the standard for selecting the next chair.
President Trump took a firm stance against concerns that this claim undermines Central Bank independence. He criticized that if experts are allowed to destroy the nation's economic upward curve, the United States can never become economically great. He argued that inflation will manage itself and that rates should be raised only at the truly "right time." By the right time, he meant when it does not interfere with a rally in which annual GDP grows 10% to 20%.
President Trump is reviewing three to four candidates to replace Chair Jerome Powell. Kevin Hassett, director of the White House National Economic Council, and former Fed Governor Kevin Warsh are being cited as strong contenders for the next chair. Fed Governor Christopher Waller also reportedly received positive reviews after interviews. "All the candidates would be good choices," President Trump said, signaling he will announce a final decision within the next few weeks.
Bloomberg analyzed that President Trump is making these remarks with a political intent to lower borrowing expense through the next Fed leadership to appeal to voters. The Fed cut the benchmark rate this month to a range of 3.5% to 3.75%, marking a third consecutive cut. However, opinions are split internally on whether to cut further. President Trump has previously argued that the benchmark rate should be lowered to below 1%.