Fed Rate Cut: Trump Expresses Skepticism Of Move—‘A Big Cut’

Topline

Former President Donald Trump and his running mate, Ohio Sen. JD Vance, criticized the state of the U.S. economy Wednesday after the Federal Reserve cut interest rates by half a percentage point in a move Fed Chairman Jerome Powell said was meant to keep the economy in “good shape.”

Key Facts

Trump told reporters during a visit to a New York City bar the rate cut “shows the economy is very bad, to cut [interest rates] by that much, assuming [the Fed] is not just playing politics”—though the Fed makes its decisions independent of lawmakers, and Trump chose Powell to lead the central bank.

The former president also called the decision to lower rates by 50 basis points “a big cut.”

Inflation remains above the Fed’s long-term benchmark of 2%, but declined to 2.5% last month—the lowest rate since early 2021.Vance was asked for his reaction on the rate cut during a rally in North Carolina, provoking boos from the crowd before he said a half-point reduction “is nothing compared to what American families have been dealing with for the last three years.”

Powell said Wednesday during a press conference the economy “is growing at a solid pace,” adding the rate cut was made to keep the economy in “good shape.”

Powell also mentioned the status of inflation during the conference, saying it “is coming down” while the labor market remains “in a strong place.”

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Crucial Quote

“We’ve waited. And I think that patience has really paid dividends in the form of our confidence that inflation is moving sustainably under 2%, so I think that is what enables us to take this strong move today,” Powell said during the press conference.

Contra

House Speaker Mike Johnson, R-La., told reporters at the Capitol on Wednesday the “timing” of the cut “is a little suspect,” before adding the decision is “welcome news for consumers.” Vice President Kamala Harris called the move “welcome news for Americans.”

Key Background

The Fed has not slashed rates since March 2020, when the COVID-19 pandemic began. The reduction brings the federal fund rates down between 4.75% and 5% after it remained between 5.25% and 5.5% since last year, after the Fed moved to aggressively hike rates to combat decades-high inflation. Trump suggested months ago the Fed could cut rates before the election, telling Bloomberg a pre-election rate cut is “something that they know they shouldn’t be doing.” However, the move to lower rates coincided with the cooling of inflation and a rise in unemployment (the Fed usually increases rates when inflation swells), though the 50 basis point cut was on the upper end of consensus estimates. Powell said the decision involved “a lot of discussion back and forth” but, despite one dissenting vote within the Fed, there was “broad support” for slashing rates 50 basis points.

Further Reading

Fed Cuts Interest Rates For First Time In 4 Years: Here’s What It Means For You (Forbes)

How Will Interest Rate Cut Impact Election? Here’s What To Know As Fed Makes First Cut Since 2020 (Forbes)

Stocks Briefly Hit Record Highs After Fed Opts For Big Interest Rate Cut—But Close Negative (Forbes)