A MARTÍNEZ, HOST:
President Trump and his economic team are increasingly lobbying public attacks against Federal Reserve Chair Jerome Powell, reflecting the president's anger that the Fed is not moving more quickly to cut interest rates. The president has called the Fed chair stupid and demanded he resign before his term expires in May of 2026. Trump says Powell is standing in the way of lower rates that would cut down the cost of financing the huge federal debt.
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PRESIDENT DONALD TRUMP: Because of one numbskull that sits here. (Impersonating Jerome Powell) I don't see enough reason to cut the rates now.
MARTÍNEZ: David Wessel is not a numbskull. He's the director of the Hutchins Center on Fiscal & Monetary Policy at the Brookings Institution. David, so what is unusual about President Trump's comments?
DAVID WESSEL: Look, A, presidents from time to time have pressured the Fed to cut interest rates so that the economy will grow faster. But Trump is doing something much different. He's suggesting that the Fed should go beyond its mandate, which is stable prices and maximum employment, to make it easier for the federal government to run huge budget deficits. Now, one reason the U.S. and other advanced economies have made their central banks independent is precisely to prevent this, to stop elected politicians from pushing interest rates down so they can borrow more and more, even if it brings unwelcome inflation. Ordering the central bank to make it easier for the government to borrow is the sort of thing that sometimes goes on in emerging markets with very weak institutions, and it usually ends very badly.
MARTÍNEZ: Now, Trump is right that inflation seems to be coming down. It's getting closer to the Fed's 2% target. So why isn't the Fed cutting rates?
WESSEL: Well, the short answer is tariffs. A couple of Fed governors - both Trump appointees, by the way - do want to cut rates now, but the bulk of the Fed policy committee wants to wait. They say the job market remains healthy, and there's a risk that the president's tariffs will lead to higher inflation and lead people to expect higher inflation. So the Fed isn't going to cut at its meeting later this month. Maybe they'll cut in September. But the president seems to be trying to send a message that people understand that if the economy doesn't do well, if it weakens, for whatever reason, it's not his fault; it's the Fed's fault.
MARTÍNEZ: Can the Fed actually do what President Trump wants, lowering government borrowing costs?
WESSEL: The federal government spends a lot of money on interest - $882 billion last year - more than it spent on defense, more than it spent on Medicare, and it's going to be higher this year. The Fed has a lot of influence over short-term interest rates. It could cut them, and that would save the government some money. But if global investors think the Fed has stopped caring about inflation and has - more worried about making it easier for the government to finance its debt, global investors are going to demand more interest rates, higher interest rates on long-term debt, and that will raise the amount of money that the government spends on interest. So I think this is a self-defeating campaign by the president, and I think it's pretty risky.
MARTÍNEZ: And one other thing - White House Budget Director Russell Vought this week attacked Powell for what he called the, quote, "ostentatious overhaul" of the Fed's Washington headquarters. What's that all about?
WESSEL: Look, I think it's a sideshow. The Fed does have a huge renovation and expansion project underway. It's not a modest building project. It's been plagued by cost overruns, and maybe there's been some mismanagement. But this seems just another way the administration is trying to make life miserable for Powell since it can't legally fire him unless it can make the case that he has mismanaged things, and this seems to be just a way to make his life miserable. I don't think it'll affect interest rates.
MARTÍNEZ: David Wessel at the Brookings Institution. David, thanks.
WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.
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