Can Trump Lower Interest Rates in 2025?
Written by
Erin Gobler
Edited by
Zuri Anderson
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Interest rates have been in the spotlight throughout the past several years and, not surprisingly, were a topic of interest during the 2024 presidential election.
While on the campaign trail, President-elect Donald Trump promised to lower interest rates. And while the president doesn’t have the power to directly set rates, their policies can certainly impact them.
Let’s look at what power Trump will actually have over interest rates when he takes office in 2025 and how his policies could raise or lower rates.
Can Trump Lower Interest Rates?Â
The short answer is that no, Trump can’t lower interest rates when he takes office in 2025.
Setting interest rates is the job of the Federal Reserve, which raises and lowers the target federal funds rate as a means of managing inflation and employment. That federal funds rate trickles down to impact the interest rates on everything from mortgages to credit cards.
For example, the Fed kept rates higher throughout late 2022 and 2023 to control the high inflation rates. But in late 2024, it started lowering rates as inflation decreased.
The Fed was created as an independent entity to most effectively carry out its goals of promoting maximum employment and stable prices. While it is accountable to Congress, neither Congress nor the president has the power to dictate interest rates or penalize Federal Reserve Board Members because they disagree with decisions about interest rates.
Because of that, Trump has little direct influence on interest rates.
How Trump’s Policies Can Impact Interest Rates
While Trump can’t directly set the federal funds rate as he’s promised to do, there are ways that his policies and those of Congress can indirectly affect rates. Here are some ways the president can impact interest rates:
Appoint and Nominate Fed Officials
One of the ways the president does directly influence the Fed — and therefore, could indirectly influence Fed actions — is by nominating members of the Board of Governors of the Federal Reserve.Â
The seven board members are nominated by the president and confirmed by the Senate to serve 14-year terms. Meanwhile, the chair and vice chair serve four-year terms.
Trump will have the opportunity to nominate a new chair in 2026, and he may be more inclined to choose someone he expects will have goals aligned with his.
Implement Fiscal Policy
While monetary policy — including setting interest rates — is up to the Fed, Congress and the president have the power to implement fiscal policy. These policies can affect employment and inflation, which can then lead the Fed to take certain actions on interest rates.
That being said, many of Trump’s proposed policies are expected to increase inflation rather than decrease it, which could result in higher interest rates — the opposite of Trump’s intended result.Â
For example, tariffs, which Trump has promised to implement when he becomes president, are often inflationary. Tax cuts, which Trump has also promised, can also be inflationary. After all, when people have more disposable income, spending rises, which can cause inflation to rise with it. Finally, experts project that Trump’s mass immigration plan could contribute to increased inflation.
So, how exactly do inflationary policies affect interest rates?
When inflation gets too high, the Fed may raise interest rates as a means of controlling it. Higher interest rates often encourage people to spend less money, which can help reduce inflation. As a result, if Trump and Congress pass many inflationary policies, we could see interest rates increase, not decrease.
That being said, other potential fiscal policies could reduce inflation and, therefore, encourage the Fed to lower interest rates. For example, if Congress and the president lower government spending, which Trump has pledged to do, it could reduce public spending and bring inflation down with it.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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