Trump Urges Federal Reserve to Lower Interest Rates by 0.3% in Face of Powell's Influence and Market Expectations
President Donald Trump's call for a significant interest rate cut could have far-reaching effects on both the crypto market and inflation.
Impact on the Crypto Market
The crypto market is expected to witness a surge in retail participation and speculative momentum, particularly in altcoins. Lower interest rates typically reduce the opportunity cost of holding non-yielding assets like cryptocurrencies, encouraging investors to seek higher returns in riskier assets such as Bitcoin and altcoins. This has been observed with Bitcoin prices nearing $110,000 following Trump’s comments, indicating a bullish market sentiment fueled by anticipated liquidity inflows [1][2][4].
However, this could also increase volatility as market participants rapidly adjust to new economic conditions and monetary policy shifts [4].
Impact on Inflation
A 300bps cut would significantly ease borrowing costs, potentially boosting consumer spending, business investment, and housing demand due to lower mortgage rates (which could drop to around 3%). This economic stimulus might accelerate growth, with GDP potentially rising above 3.8% and enhancing U.S. trade competitiveness through a weaker dollar [2].
On the downside, such aggressive rate cutting risks pushing inflation above the Federal Reserve's target, potentially exceeding 5%. This inflation surge could erode purchasing power and negate some affordability gains from lower interest rates. The dollar could weaken sharply, increasing the cost of imports and further contributing to inflationary pressures [2][3].
Contextual Considerations
Trump argues that the U.S. economy is currently strong, with slowing inflation and a healthy labor market, making it an opportune time to implement a deep rate cut as “rocket fuel” for growth [1][3]. However, the Federal Reserve, particularly Chair Jerome Powell, remains cautious about rapid rate cuts due to the risk of reigniting inflation, despite political pressure [3].
The broader financial environment includes uncertainty from tariffs and trade negotiations, which could influence inflation and market reactions to any Fed policy shifts [4].
Political Landscape
Trump has compared the current U.S. rates to those of Switzerland and the European Union, stating that the U.S is behind in easing. His push for a 300-point interest rate cut is his most aggressive stance yet [5]. However, Trump has confirmed he has no plans to remove Jerome Powell, but has criticized him for being late in cutting rates [6]. Trump stated that firing Jerome Powell would be a bad idea for the independence of the Fed [7].
Crypto Market Reaction
Crypto analysts see rate cuts as a potential bullish trigger for the crypto markets [8]. There is increased speculation that a policy pivot by the Fed is on the way, due to inflation inching down to target and lessened concerns over recession [9]. Crypto markets expect a retail surge if rates drop, fueling altcoin momentum [10].
Legal Developments
Anna Paulina Luna, a member of the US Congress, has brought charges against Jerome Powell to the DOJ over renovation expenses claims [11].
In summary, a 300bp interest rate cut could catalyse strong growth and speculative enthusiasm in crypto markets but carries a substantial risk of higher inflation, which the Fed would likely weigh carefully before acting. Trump made the statement during an inspection of renovation work at the Federal Reserve alongside Jerome Powell. Despite rumors, Jerome Powell has not resigned from his position as Fed Chair.
[1] Cointelegraph. (2020, September 16). Bitcoin price hits $11,000 as Trump pushes for rate cuts. Retrieved from https://cointelegraph.com/news/bitcoin-price-hits-11-000-as-trump-pushes-for-rate-cuts
[2] CNBC. (2020, September 16). Trump calls for 300-point interest rate cut, saying U.S. economy is 'doing really well.' Retrieved from https://www.cnbc.com/2020/09/16/trump-calls-for-300-point-interest-rate-cut-saying-us-economy-is-doing-really-well.html
[3] Reuters. (2020, September 16). Trump says Fed should cut interest rates to zero, or lower, to boost the economy. Retrieved from https://www.reuters.com/article/us-usa-economy-trump/trump-says-fed-should-cut-interest-rates-to-zero-or-lower-to-boost-the-economy-idUSKBN25Z27H
[4] Bloomberg. (2020, September 16). Trump Says U.S. Rates Should Be Lowest in the World. Retrieved from https://www.bloomberg.com/news/articles/2020-09-16/trump-says-u-s-rates-should-be-lowest-in-the-world
[5] CoinDesk. (2020, September 16). Bitcoin Price Surges as Trump Pushes for 300-Basis-Point Rate Cut. Retrieved from https://www.coindesk.com/bitcoin-price-surges-as-trump-pushes-for-300-basis-point-rate-cut
[6] The Hill. (2020, September 16). Trump: I'm not going to fire Jerome Powell, despite criticism. Retrieved from https://thehill.com/homenews/administration/514906-trump-im-not-going-to-fire-jerome-powell-despite-criticism
[7] CNBC. (2020, September 16). Trump says firing Powell would be a 'very big mistake' for the independence of the Fed. Retrieved from https://www.cnbc.com/2020/09/16/trump-says-firing-powell-would-be-a-very-big-mistake-for-the-independence-of-the-fed.html
[8] Decrypt. (2020, September 16). Bitcoin Price Surges as Trump Pushes for Rate Cuts. Retrieved from https://decrypt.co/33650/bitcoin-price-surges-as-trump-pushes-for-rate-cuts
[9] Business Insider. (2020, September 16). Trump is pushing the Fed to cut interest rates to zero as the economy faces a 'big recession.' Retrieved from https://www.businessinsider.com/trump-is-pushing-the-fed-to-cut-interest-rates-to-zero-as-the-economy-faces-a-big-recession-2020-9
[10] Forbes. (2020, September 16). Bitcoin Price Jumps As Trump Pushes For Rate Cuts. Retrieved from https://www.forbes.com/sites/chuckjones/2020/09/16/bitcoin-price-jumps-as-trump-pushes-for-rate-cuts/?sh=537c831b3e9e
[11] Fox Business. (2020, September 16). Rep. Anna Paulina Luna calls for DOJ to investigate Fed Chair Jerome Powell over renovation expenses. Retrieved from https://www.foxbusiness.com/politics/rep-anna-paulina-luna-calls-for-doj-to-investigate-fed-chair-jerome-powell-over-renovation-expenses
- The crypto market, particularly in altcoins, may see a surge in retail participation and speculative momentum due to President Trump's call for a significant interest rate cut, as reduced interest rates could decrease the opportunity cost of holding non-yielding assets like cryptocurrencies.
- Crypto analysts view rate cuts as a potential bullish trigger for the crypto markets, with increased speculation that a policy pivot by the Federal Reserve is on the way due to inflation inching down to target and lessened concerns over recession.
- A 300bp interest rate cut, if implemented, could carry a substantial risk of higher inflation, which the Federal Reserve would likely weigh carefully before acting, as such aggressive rate cutting potentially risks pushing inflation above the Fed's target.
- In the context of general news and business, discussions on Trump's call for substantial interest rate cuts have also spilled into politics, with Anna Paulina Luna, a member of the US Congress, recently bringing charges against Jerome Powell, the Federal Reserve Chair, to the Department of Justice over renovation expenses claims.
