What a Trump Presidency Could Mean for Interest Rates That Affect You
Written by
John Csiszar
Edited by
Gary Dudak
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One of the many things former President Donald Trump is most known for is his outspoken and often controversial comments to the press. While you can argue that much of what he says is for political or self-aggrandizing purposes, his comments can and do have real-world implications.
In one of his most recent interviews, Trump said that if he was re-elected in 2024, he would not reappoint Federal Reserve Chair Jerome Powell. While that may seem like a political or governmental issue that wouldn’t affect you directly, you might be surprised at what a big deal this decision could be.
Here’s a look at the reasons why Trump might feel that way and how such a decision could affect your personal financial life.
Why Does Trump Have It Out for Powell?
It might seem strange that Trump seems to have it out for Powell, as he was the one who nominated him for the position of Fed chair in 2017. But now, in a hard-fought election year, Trump is singing a different tune.
According to the ex-president, “It looks to me like he’s trying to lower interest rates for the sake of maybe getting people elected, I don’t know…I think he’s going to do something to probably help the Democrats, I think, if he lowers interest rates.”
Starting in late 2023, Powell has indeed indicated that he plans to lower interest rates during 2024. In Powell’s estimate, the aggressive tightening cycle the Fed undertook to get inflation under control has run its course and now threatens to slow the economy too much, potentially tipping it into a recession. To protect against that, he feels it will soon be time to loosen economic conditions.
Aren’t Fed Chairs Supposedly Independent?
Even though the Federal Reserve Chair is nominated by the president and confirmed by the Senate, the Fed itself is an independent entity of the federal government. Although it is ultimately accountable to Congress and the public at large, no political party or person, even the President of the United States, has control over what the Fed says or does.
However, while the Fed operates completely independently, the president is still the one who nominates the Fed chair. Hopefully this means that the president will select someone he or she feels will act in the best interest of the country. However, it’s only human nature that POTUS will also lean toward a candidate somewhat in line with their own personal beliefs.
Trump’s comments regarding not reappointing Powell as Fed chair may just be political rhetoric. After all, Trump actually praised Powell when he was lowering interest rates during his own term, but now that Joe Biden is president, he doesn’t seem to want him to lower rates again.
Nevertheless, Trump insists that if he’s re-elected, Powell’s term is over, and he has “a couple of choices” for the next Fed chair in mind.
How the Fed Chair Could Affect Your Personal Finances
Regardless of the politics of the situation, having a new Fed chair in place could directly affect your personal finances.
Imagine, for example, that Trump installs a new Fed chair that believes in holding interest rates higher for longer to ward off inflation. This would mean that everything from home mortgages to auto loans to credit card rates will remain high, cutting into your cash flow and making it more expensive to borrow money. Holding rates high for too long could also potentially tip the economy into a recession, at which point even your job might be at risk.
Of course, presidents by their very nature are political, so Trump’s statements about how cutting rates in 2024 will only help Democrats could be just him playing politics. If he is re-elected and wants the economy — and likely the stock market — to get a big boost, he’ll probably be the first to proclaim that the Fed should start cutting rates.
What You Should Do To Prepare
Although Fed Chair Powell is technically independent, he’s also a political football — especially in an election year. This means that it can be hard to plan your finances around the potential removal of Powell as Fed chair, especially when it’s unknown who might replace him.
It does pay to listen to the words of the Fed chair, though, regardless of who he or she is now and in the future. This is because the Fed always telegraphs the direction in which interest rates are headed. When it comes to your personal finances, that’s the most important bit of information you can have, not what any current or ex-president says.
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