Despite President Trump ramping up pressure on Federal Reserve Chair Jerome Powell to cut interest rates, the Fed held rates steady at 4.25% to 4.5% on Wednesday, July 30. Trump has been insistent on a major cut all the way down to 1%.
Those who support the idea argue that a lower rate would reduce borrowing costs for consumers, mortgages, auto loans and corporations. Governors Michelle Bowman and Christopher Waller voted against the rates, the first time since 1993 that multiple governors voted against a rate decision.
But critics, including economists, former Fed officials and business leaders, warn that such heavy-handed interference in monetary policy could backfire, risking higher inflation, market instability and long-term damage to the Fed’s independence.
Here’s what Trump’s push could mean for your job prospects, investments and savings, and why experts say it’s not that simple.
While Trump is pressuring the Fed to slash the federal funds rate, some experts argue that bond yields are far more important to the broader economy.
In an interview with Fox Business earlier this year, Treasury Secretary Scott Bessent said the administration is paying closer attention to the 10-year Treasury yield, not the fed funds rate.
That distinction matters. The Fed funds rate primarily affects short-term borrowing — like credit cards and personal loans. But long-term borrowing, including mortgages and auto loans, is more closely tied to the yield on government bonds.
For example, over the past year, even as the Fed cut its policy rate from 5.5% in September 2024 to 4.5% by August 2025, mortgage rates didn’t follow suit. That’s because bond yields have climbed, pushing borrowing costs higher, according to The Wall Street Journal.
In fact, many economists warn that if the Fed cuts rates too quickly, bond yields could rise even further, potentially driving up mortgage rates and undermining the very goal of making borrowing cheaper.
In an interview with the Harvard Gazette, Daniel Tarullo, Nomura Professor of International Financial Regulatory Practice at Harvard Law School and former Federal Reserve governor, warned that Trump’s efforts to pressure or potentially remove Fed leadership could be deeply counterproductive.
He argues that bond yields and investor confidence are shaped by the belief that the central bank will act independently and responsibly, and that ndermining that independence could have serious consequences.
The Harvard Gazette reported on the subject in April, saying “What markets fear is that if a president removes the chair or other members of the Board of Governors, it would be with the intent of having a looser monetary policy. At that point, the markets’ trust in the central bank will be substantially undermined, and thus, the central bank’s credibility as an inflation fighter will be undermined. Longer-term interest rates will then rise, probably dramatically.”
A similar scenario played out in Turkey, where President Recep Tayyip Erdoğan repeatedly pressured the country’s central bank to cut rates against economic advice. According to the American Enterprise Institute, the result was a collapse in the value of the Turkish lira and a surge in inflation.
In the U.S., there are multiple layers of protection in place, including institutional norms and legal safeguards, that make it difficult for any president to unilaterally reshape Fed leadership or monetary policy. But experts say the pressure alone can still erode market confidence.
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With Powell’s term as Fed chair set to end in May 2026, investors and consumers will see a change in leadership at the central bank in the not-too-distant future. Trump will have the authority to nominate a new chair or choose to re-nominate Powell, and the nominee must be confirmed by the Senate.
Still, a new chair wouldn’t have the power to set rates alone. The federal funds rate is determined by the Federal Open Market Committee (FOMC), which includes the chair, six Fed governors and 12 regional Federal Reserve bank presidents.
“There’s no question that the chair is far and away the most important individual on the FOMC,” Tarullo says. “But it’s not the case that the chair can simply dictate what policy is going to be and the rest of the FOMC will fall into line.”
For consumers, experts say the takeaway is more complicated than it might seem. While aggressive rate cuts could reduce borrowing costs in the short term, economists warn they could also lead to higher inflation and long-term instability, especially if the Fed’s independence is weakened. In their view, unless inflation cools or the economy slows, rates on mortgages, credit cards and auto loans are unlikely to drop significantly anytime soon.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
