Many people are concerned about why the Federal Reserve has not lowered interest rates yet. Inflation is clearly easing, and economic data is weakening, yet rates remain high.
One key reason, which you might not expect: Trump is too 'talkative'. As the saying goes, a person's biggest enemy is themselves. And Trump's words are the biggest obstacle for the Federal Reserve.
Looking back at this time, Trump has frequently attacked Federal Reserve Chairman Powell with exaggerated rhetoric, calling him 'weak' and 'stupid' and even hinting at wanting to 'fire him'. This has not happened just once or twice, but has been almost a long-term pressure. So, why can't the Federal Reserve cut rates? It's simple: the timing is wrong, the motives are impure, and it would trigger a crisis of trust.
Imagine if the Federal Reserve immediately cut interest rates after Trump's repeated attacks, how would the market interpret this? - The Federal Reserve succumbs to political pressure from the White House.
This would not only severely damage Powell's personal credibility but also undermine the foundation of the entire Federal Reserve as an 'independent institution'. More seriously, global bond investors may wonder: has the Federal Reserve stopped relying on data and started serving political purposes? Once this trust is broken, the world may no longer feel secure buying U.S. Treasuries. Without a strong bond market, the Federal Reserve will completely lose its tools to regulate the economy.
We see that even though some economic indicators are aligning towards 'rate cuts', like the five-year breakeven inflation rate dropping from 2.6% in February to 2.33% now, and manufacturing continuing to contract, the market still dares not bet on Powell acting immediately.
Because everyone knows that what Powell has to protect is not just inflation data, but also the independence and credibility of the Federal Reserve. Even the Atlanta Fed has downgraded its Q2 GDP forecast from 2.4% to 1.1%, yet the market's reaction remains cautious. This is very telling.
Ironically, Trump's hard stance against the Federal Reserve may actually push back the timing of any rate cuts. This is not because Powell is 'competing', but because he has no other choice. If he cuts rates now, it would be equivalent to admitting that he has been 'moved' by Trump’s calls. For the Federal Reserve, this cost is too great. What Trump really wants is to lower interest rates, especially mortgage rates. Why? Because the real estate market is currently frozen by high rates. The 30-year fixed mortgage rate is currently at 6.76%, far above the 3%-4% level during the pandemic. Many people are unwilling to change homes because doing so means mortgage rates would double. JPMorgan has pointed out that only when the 30-year mortgage rate drops to around 5% can the real estate market truly begin to recover. To achieve this goal, the 10-year U.S. Treasury yield must also drop to around 2.6% - what is it now? 4.33%.
So you see, the more Trump tries to 'force' a rate cut with his words, the more he pressures Powell not to act. It's not a technical issue, but an institutional conflict. From this perspective, if Trump really wants to help himself, the best approach might be to keep quiet. Lowering interest rates is a technical task, but trust is the core asset. Powell must protect the institution, not short-term approval ratings. In a country where even the Federal Reserve may lose its independence, the financial market becomes extremely dangerous.
The winner of this game will not be the one who shouts the loudest, but the one who can hold the bottom line.