Written by Michael S. Derby and Dan Burns

(Reuters) – US President Donald Trump said on Thursday that he wants the Federal Reserve (the US central bank) to lower interest rates at a time when the central bank has paused for an uncertain period, saying that he understands monetary policy better than those charged with setting it.

“As oil prices fall, I will demand that interest rates be lowered immediately, and likewise they must be lowered around the world,” Trump told the World Economic Forum on Thursday in Davos, Switzerland.

At a White House event following those comments, Trump said: “I think I know interest rates a lot better than I know them, and I think I certainly know a lot better than the person who is primarily responsible for making that decision,” in an apparent reference to Federal Reserve Chairman Jerome. Powell, who was appointed by Trump to head the Federal Reserve in his first term as chairman.

Trump’s comments come five days before the Federal Reserve’s first monetary policy meeting of his administration – on January 28-29 – with very broad expectations that officials will leave interest rates unchanged.

The Fed cut its overnight interest rate target by a quarter of a percentage point at its December policy meeting to between 4.25% and 4.5%.

For all of 2024, the Fed cut interest rates by a full percentage point amid easing inflation pressures and a feeling among Fed officials that they want monetary policy to exert less restraint on the economy’s momentum. The December meeting also saw officials trim their estimates for cuts in 2025 amid expectations of higher inflation levels and slightly better growth.

Trump’s comments on Federal Reserve interest rate policy are highly unusual for modern-day presidents and run counter to the agency’s design to set interest rate policy independently. The Fed, which does not have to follow any instructions from the president, did not immediately respond to a request for comment.

Policy uncertainty

A number of Fed officials, including Powell, have already expressed the need for caution about cutting interest rates further due to persistent inflation. Many policymakers made an effort to take Trump’s potential policies into account in new projections released at the December policy meeting. Cutting interest rates when inflation is still above the Fed’s 2% target may worsen rather than improve price pressures.

Speaking last week, New York Fed President John Williams noted that uncertainty surrounding government policy actions makes it particularly difficult to provide guidance on monetary policy expectations at this time.

“The economic outlook remains highly uncertain, especially with regard to potential fiscal, trade, immigration and regulatory policies,” Williams said. “Therefore, our decisions on future monetary policy actions will continue to depend on the overall data and development of the global economy.” Economic prospects and risks to achieving our dual mandate goals.

Trump’s pursuit of sweeping tariffs on America’s trading partners, which effectively tax imports, combined with his plan to deport large numbers of illegal immigrants, runs the real risk of reigniting inflationary pressures, in the view of many. Economists and investors. The looming question then is whether Fed officials believe the rate increase is a one-off or the beginning of a more sustained rise, which could in turn push interest rates higher.

Some Fed officials believe enough clarity may soon arrive on the inflation front to return to cutting interest rates. Citing recent favorable rate pressure data, Fed Governor Christopher Waller told CNBC on January 16 that “if we continue to get numbers like these, it is reasonable to believe that interest rate cuts are possible in the first half of the year.”

Waller, who was chosen by Trump as Fed governor and took office in 2020, was somewhat skeptical that the trade tariffs envisioned by Trump would lead to inflation rising in the way many economists believe. “If, as I expect, tariffs do not have a significant or sustained impact on inflation, they are unlikely to affect my view of appropriate monetary policy,” he said on January 8.

Trump was widely critical of the Fed for raising interest rates during the first two years of his first term in office, and criticized Powell, whom Trump appointed to lead the US central bank, for leading those efforts. Powell’s term as Fed chairman expires in 2026 and before taking office, Trump said he was not inclined to fire Powell early, amid legal questions about whether such action was possible.