President Donald Trump has quickly rekindled a strategy he employed during his previous term: pressuring Federal Reserve Chair Jerome Powell and other officials to lower interest rates.

Economists warn that Trump’s statements, such as those made on Thursday during a video call at the World Economic Forum in Switzerland, could jeopardize the Fed’s independence. They might inadvertently provoke inflationary concerns that would lead to higher long-term rates instead.

Trump argued that Saudi Arabia and OPEC should take action to reduce oil prices, and stated, “With oil prices decreasing, I will demand that interest rates be lowered immediately.”

His comments did not directly pressure the Fed to cut rates at that moment but suggested that a decline in oil prices would help ease inflation and possibly prompt him to request lower rates, according to Barclays economist Jonathan Millar, who worked at the Fed from 2004 to 2018.

Despite this, during last year’s presidential campaign, reports indicated that Trump’s advisers were considering a plan to undermine the Fed’s conventional independence by allowing presidential consultation on interest rate decisions.

Trump’s remarks also reflect similar statements he made during his first term aimed at persuading the Fed to reduce rates.

Does the President Have Control Over the Fed?

The Fed has long been viewed as insulated from political influences to make interest rate decisions that best serve the economy. The Fed lowers rates to stimulate a sluggish economy and job market, while it raises rates to combat inflation or prevent significant price increases.

In contrast, a U.S. president may want to decrease rates to strengthen the economy and enhance their own election chances, as well as those of fellow party members.

When reporters in the Oval Office later asked Trump about his comments, he asserted, “I believe I understand interest rates better than they do.”

He further claimed, referring to Powell, “And I think I know it certainly much better than the one who’s primarily responsible for making that decision. But I’m definitely guided by them, although if I disagree, I will express that.”

When questioned whether the Fed would heed his call for lower rates, Trump responded, “Yes.” He also mentioned, “At the appropriate time, I would meet with Powell about lowering the rates.”

Why Did the Fed Lower Interest Rates?

Following significant rate hikes to combat inflation spurred by the pandemic, the Fed reduced rates by one percentage point in the latter half of last year as annual price increases significantly slowed. However, in December, the Fed projected two quarter-point rate cuts in 2025 after inflation numbers turned out higher than anticipated, and the labor market remained strong, decreasing the immediate need for rate cuts.

Futures markets predict the Fed will decrease its key interest rate by a quarter point in both June and December, whereas Barclays anticipates only one reduction in June.

Initially, the central bank had expected four rate cuts in the current year. The Fed’s next meeting is scheduled for Tuesday and Wednesday.

Fed officials have indicated that their revised predictions for fewer cuts are influenced, at least in part, by Trump’s intentions to impose substantial tariffs on imports from Canada, Mexico, and China, as well as deport millions of undocumented immigrants. Significant tariffs are likely to be transferred to consumers as higher prices, and deporting immigrants might lead to labor shortages that result in increased wages and prices, according to economists.

Millar believes Trump’s comments on interest rates will not sway Fed decisions. Nevertheless, he noted, “It raises genuine questions regarding the Fed’s independence.”

If the Fed does lower rates sooner than expected, investors might suspect that officials were influenced by Trump’s comments. Conversely, if they choose not to cut rates, it might raise questions about whether they delayed doing so to assert their independence rather than for economic reasons.

“The perception is crucial,” Millar remarked.

“It poses a significant issue for the independence of the central bank,” stated Francesco Bianchi, an economics professor at Johns Hopkins University who studies the intersection of political agendas and monetary policy on asset prices.

Ironically, if investors become concerned that the Fed could be swayed by Trump’s desire to lower rates, it may spark inflation fears that raise long-term rates, including those for mortgages, according to both Bianchi and Millar.

Powell has consistently maintained that the Fed operates free from political influence. His term as chair is scheduled to end in May 2026, and he has asserted that the law does not permit Trump to replace or demote him.

Contributing: Swapna Venugopal Ramaswamy