{"id":40941,"date":"2025-10-27T07:15:00","date_gmt":"2025-10-27T14:15:00","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=40941"},"modified":"2025-10-28T23:54:30","modified_gmt":"2025-10-29T06:54:30","slug":"trumps-golden-age-economic-message-undercut-by-his-desire-for-much-lower-interest-rates-which-typically-signal-a-weak-jobs-market","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/trumps-golden-age-economic-message-undercut-by-his-desire-for-much-lower-interest-rates-which-typically-signal-a-weak-jobs-market\/","title":{"rendered":"Trump\u2019s \u2018golden age\u2019 economic message undercut by his desire for much lower interest rates \u2013 which typically signal a weak jobs market"},"content":{"rendered":"\n

Joshua Stillwagon<\/a>, Babson College<\/a><\/em><\/p>\n\n\n\n

President Donald Trump seems to want to have it both ways on the U.S. economy.<\/p>\n\n\n\n

On the one hand, he recently said the economy is in its \u201cgolden age<\/a>\u201d and referred to the U.S. as the \u201chottest country anywhere in the world<\/a>.\u201d<\/p>\n\n\n\n

Yet at the same time, he has outright demanded that the Federal Reserve sharply slash<\/a> interest rates to fuel economic activity. And his recently handpicked governor<\/a>, Stephen Miran, has led the charge<\/a> in pushing for a bigger cut than preferred by his new colleagues at the Fed.<\/p>\n\n\n\n

When an economy is strong, central banks typically don\u2019t cut interest rates<\/a> and may even raise them to avoid spurring inflation. And so to support his argument for large cuts, Miran has played up \u201cdownside risks\u201d<\/a> to the economy and a weakening labor market, contrasting with Trump\u2019s talk of a \u201cgolden age.\u201d<\/p>\n\n\n\n

Trump and Miran also seem to be ignoring the problem of inflation, which the president has said \u201chas been defeated<\/a>\u201d and Miran considers close enough to the Fed\u2019s target of 2%. Yet, inflation remains high and has been picking back up<\/a> in recent months \u2013 one of the core reasons the Fed has taken a gradual approach<\/a> to lowering interest rates.<\/p>\n\n\n\n

I\u2019m a macroeconomist<\/a>, which means I study big-picture factors affecting an economy, such as interest rates.<\/p>\n\n\n\n

It\u2019s well known that lower rates spur faster growth<\/a>, and of course all presidents want a stronger economy on their watch. But the Fed\u2019s job when it sets interest rates is to deal with whatever reality the data shows \u2013 and make decisions accordingly.<\/p>\n\n\n\n

Is the economy hot or not?<\/h2>\n\n\n\n

In the simplest terms, the Fed raises interest rates when the economy is \u201chot,\u201d or inflation is above the Fed\u2019s 2% target, and lowers them when there are concerns about unemployment.<\/p>\n\n\n\n

At its most recent meeting, in September, the Fed lowered rates a quarter of a point, citing slowing jobs growth<\/a>, and increased economic uncertainty. Trump nominee Miran was the only one of the 12 members of the Fed\u2019s policy-setting committee to instead vote for a more aggressive half-point cut<\/a>.<\/p>\n\n\n\n

The only credible rationale for that large of an interest rate cut, in the face of still-high inflation, is by believing the labor market is incredibly weak. According to the Fed\u2019s preferred measure, the personal consumption expenditures index<\/a>, inflation has been accelerating all summer and was 2.7% at the end of August, well above the Fed\u2019s 2% target.<\/p>\n\n\n\n

There\u2019s no doubt jobs growth has slowed considerably<\/a> in recent months, but enough to completely ignore the risk of driving inflation higher? At this point at least, the Fed doesn\u2019t think so.<\/p>\n\n\n\n

And if the economy were in fact running hot, as the president claims, the Fed would have little choice but to keep rates flat or raise them, especially given elevated inflation.<\/p>\n\n\n\n

\"a
Stephen Miran, who was recently nominated to the Federal Open Market Committee, has been pushing for much larger rate cuts than his colleagues. AP Photo\/Mariam Zuhaib<\/a><\/figcaption><\/figure>\n\n\n\n

Risks of following political whims<\/h2>\n\n\n\n

This situation gets at the heart of why central bank independence matters.<\/p>\n\n\n\n

Trump\u2019s efforts to influence the Federal Reserve have not been subtle and break with Congress\u2019 intention to insulate the Fed from political manipulation<\/a>. Besides pressing for big rate cuts, he has tried to fire a member of the Board of Governors<\/a> over questionable allegations<\/a> and mused about removing Fed Chair Jerome Powell<\/a>.<\/p>\n\n\n\n

The risks of following the wishes of a president in the face of what the data shows were starkly demonstrated in 2021, when Turkey\u2019s president, Recep Tayyip Erdogan, fired the head of the country\u2019s central bank<\/a>. The central banker was pushing rates higher to tame inflation, which was at about 20%<\/a>, but Erdogan demanded they be lowered. In response, Turkey\u2019s lira plunged to record lows<\/a> and inflation soared<\/a> to over 70% in 2022.<\/p>\n\n\n\n

Something similar could happen in the U.S. if Trump continues down the same path of meddling with the Fed. As a sign of how much Wall Street worries about this risk, a recent study estimated<\/a> that if Trump followed through on his threat to fire Powell, the stock market could lose an estimated US$1 trillion as a result.<\/p>\n\n\n\n

That\u2019s because the Fed\u2019s credibility rests on its ability to make decisions driven by economic evidence, not political expedience. That independence means policymakers must weigh data on inflation, jobs and growth rather than election cycles or partisan demands.<\/p>\n\n\n\n

Justifying deeper rate cuts<\/h2>\n\n\n\n

Looking ahead to the Fed\u2019s next meeting Oct. 28-29, policymakers face a delicate balancing act. With inflation still running above target and signs of slowing jobs growth, it needs to lower rates enough to prevent a downturn but not so low that inflation spirals out of control.<\/p>\n\n\n\n

Traders are putting near-100% odds of two more quarter-point cuts<\/a> this year, one on Oct. 29 and another in December. This would bring the Fed\u2019s benchmark interest rate to a range of 3.5%-3.75% by the end of 2025, down from 4%-4.25% now.<\/p>\n\n\n\n

Based on Miran\u2019s own interest rate projections, he\u2019s likely to again push for a larger cut of a half-point or more at both meetings, as he believes the Fed\u2019s benchmark rate should be below 3%<\/a> by the end of the year.<\/p>\n\n\n\n

To me, as an economist, the only way a Fed acting independently could reasonably justify such a significant cut in rates in the next few months is if the unemployment rate begins rising steadily, with the economy clearly at risk of slipping into a recession.<\/p>\n\n\n\n

Joshua Stillwagon<\/a>, Associate Professor of Economics, Babson College<\/a><\/em><\/p>\n\n\n\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Joshua Stillwagon, Babson College President Donald Trump seems to want to have it both ways on the U.S. economy. On the one hand, he recently said the economy is in its \u201cgolden age\u201d and referred to the U.S. as the \u201chottest country anywhere in the world.\u201d Yet at the same time, he has outright demanded […]<\/p>\n","protected":false},"author":56,"featured_media":40942,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,826,277,46,295,10,25,296,36,27,4],"tags":[17082,479,350,885,891,886,860,347,348,11014,13918],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/40941"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/56"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=40941"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/40941\/revisions"}],"predecessor-version":[{"id":40943,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/40941\/revisions\/40943"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/40942"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=40941"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=40941"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=40941"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}