Donald Trump has warned Jay Powell not to cut US interest rates before November’s presidential vote, but said if elected he would let the Federal Reserve chair serve out his term if he was “doing the right thing”.
The Republican nominee acknowledged in an interview with Bloomberg News that the central bank would “maybe” cut interest rates before the election on November 5, but added “it’s something that they know they shouldn’t be doing”.
Trump also addressed mounting concerns in financial markets that he would politicise the Fed, starting with attempting to force Powell out before the end of his term as Fed chair in 2026.
“I would let him serve it out,” the former president said. “Especially if I thought he was doing the right thing.” The interview with Bloomberg was conducted in late June but published during the Republican convention in Milwaukee on Tuesday.
Investors have worried the former president would seek to unseat Powell, who is broadly seen on Wall Street as an effective chair, steering the Fed through one of the worst inflation shocks in decades.
But Trump’s caveat that he wanted to see Powell do “the right thing” may leave some questions around the Republican nominee’s pledge not to push for his early replacement.
Powell said on Monday that the central bank was gaining greater confidence that inflation was easing back to the Fed’s target of 2 per cent, adding to expectations that the central bank would make its first rate cut since 2020 at its meeting in September, just six weeks before the election.
Trump has relentlessly attacked President Joe Biden over the economy, blaming his Democratic rival for a jump in inflation as the Covid-19 pandemic snared up global supply chains and energy costs surged after Russia’s full-scale invasion of Ukraine.
Despite nominating Powell to serve as chair in 2017, Trump repeatedly attacked the Fed chair during his term as president for not lowering interest rates in the midst of his trade wars. He once asked if the Fed chair was a bigger enemy to the US than Chinese President Xi Jinping.
A push by Trump to replace Powell before the end of the chair’s term would probably face a legal challenge, trigger a stand-off with the central bank and risk significant market volatility.
The Fed has been debating when it will lower its benchmark rate from a 23-year high of 5.25-5.5 per cent, a level held since last July. With price pressures easing and the labour market showing cooling, officials have signalled that a reduction in borrowing costs will soon be warranted.
The Fed’s political independence has long been considered essential to its capacity to manage the US economy. Powell has stressed that its decisions are based solely on the economy’s health.
“Our undertaking is to make decisions when and as they need to be made, based on the incoming data, the evolving outlook and the balance of risks, and not in consideration of other factors,” he told congressional leaders earlier this month. “That would include political factors.”
In the Bloomberg interview, Trump also took aim at Taiwan, saying the island nation should pay the US for the implicit security guarantee provided by the American military.
Repeating a claim that Taiwan “stole our chip business”, he said: “Taiwan should pay us for defence. You know, we’re no different than an insurance company. Taiwan doesn’t give us anything.” Although Taiwan buys American-made weaponry for its defence forces, the US regularly provides military aid as well.
China claims Taiwan as part of its territory and threatens to attack it if Taipei refuses to submit under its control indefinitely. The US has long acted as the de facto guarantor of the island nation’s security with an albeit ambiguous commitment to help it defend itself.
Under the Taiwan Relations Act, a US law, Washington considers any effort to determine Taiwan’s future by non-peaceful means as of grave concern to the US, and commits to provide Taiwan with defensive weapons and to maintain the US’s capacity to resist force or coercion that would jeopardise Taiwan’s security.
Noting Taiwan’s location 9,500 miles from the US and only 68 miles from China, Trump said Beijing “could just bombard it”, and was only reluctant to because that would destroy the island’s chip manufacturing industry. Taiwan manufactures more than 90 per cent of the world’s most advanced semiconductors.
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