Author profile: Stone, Assistant Researcher of the Institute for the Development of Fudan, Assistant Director of the Center for Macroeconomic Research of Fudan
On the evening of 25 local time, U.S. President Donald Trump issued an open letter on social media “real social” unilaterally announcing the dismissal of the Federal Reserve, Elizabeth Cook, and that it came into effect immediately. According to Trump, the dismissal of Cook was due to the fact that the Federal Reserve Chairman signed a contradictory mortgage document in the real estate transaction.The deeper motivation for Trump's "firing storm" remains to force the Federal Reserve to cut interest rates。
Why has Trump repeatedly called for lower interest rates?
Since his re-election as US president, Trump has been demanding that the Federal Reserve cut the federal base rate, and even repeatedly threatened to fire Federal Reserve Chairperson Jerome Powell. Under Powell's leadership, the Fed has decided to keep interest rates unchanged at around 4.3% for five consecutive times; Trump believes that interest rates should be lowered by another 300 basis points to around 1%. As a result, Trump and the Federal Reserve have engaged in a fierce game.
At the Federal Reserve's monetary policy meeting at the end of July 2025, the two governors appointed by Trump in 2018 and 2020 voted against unchanged interest rates, but they still couldn't match the other five votes including Powell and Cook. You must know that Cook was nominated by former US President Biden to serve as a governor of the Federal Reserve in 2022, and his term of office will last until 2038-for Trump, Cook is a "hard nut" that cannot be won. However,If it is possible to replace Powell and Cook as Trump friends as soon as possible, then the Fed’s Open Market Committee will form a 4 to 3 favorable vote on interest rate cuts.。Trump believes that this will "have the advantage" and cut interest rates will be a certainty.
Why has Trump repeatedly called for lower interest rates?Since Mr. Trump was elected president in 2017, and Mr. Biden succeeded him, the US has been upending its own free-trade order. Rising tariffs have sent prices soaring in the US, driving inflation to record highs. At this point, the Fed's fundamental purpose in raising interest rates is to calm prices, thereby stabilizing market expectations and economic order.
But after Trump was re-elected President of the United States in 2025, tariffs became the core key to the White House’s response to economic and trade issues.As a result, inflation expectations in the United States are rising again。
But at this time, Trump could no longer blame former President Biden for inflation, so he instead shifted the blame to the Federal Reserve. But in fact,Trump’s economic policies have begun to weaken consumer confidence, bringing the risk of a recession, and once the recession really comes, Trump will blame the Fed for not cutting interest rates faster, thus finding some reason for his economic policy.。
2. Does the United States need low interest rates?
From a macro perspective, the U.S. economy has performed well this year, which seems to have created conditions for lower interest rates. The current unemployment rate in the United States is 4.1%, which remains stable year-on-year and at a low level; Of course, the unemployment rate has increased by 10 basis points since January 2025, but it was down in June from May; What's more, in the first quarter of 2025, the U.S. economy added an average of 111,000 net jobs per month, while in the second quarter, it added an average of 150,000 jobs. According to data from the U.S. Bureau of Labor Statistics, the level of layoffs or unemployment claims has remained stable, indicating that the unemployment rate will remain low in the short term.
But the problem is,Inflation in the United States is expected to accumulate rapidly。
US consumer price inflation in July 2025 was 2.7 per cent, well above the Federal Reserve's 2 per cent target and arguably accelerating slightly. Excluding energy and food, core inflation also accelerated slightly in the second quarter to 2.9 per cent in June 2025, up from 2.8 per cent in May and the highest monthly rate since February. In July, core inflation rose 0.3 per cent month-on-month to 3.1 per cent, the fastest pace in nearly six months.
In other words, the Fed's current interest rate level of about 4.3% does not seem to be enough to stem the upward trend in inflation. Financial conditions are looser than they were at the start of the year, by goldman's measure,As U.S. companies are forced to shift higher tariff costs out to protect profits, rising inflationary pressures could rise in the coming months.。 This means that Trump's tariff hikes should have caused only one-time price increases, but if the price increases are embedded in higher inflation expectations, this will no longer be the case. Many economists believe thatUnder conditions of high tariffs, inflation expectations may have self-realizing effects that will accelerate actual inflation.。
But in Trump's view, lowering interest rates does not require considering too complex factors.
In this regard, U.S. renowned economist, Harvard University professor, Jeffrey Frankel, who was a member of the White House Economic Advisory Committee during the time of former President Clinton, recently made an interesting study.Between January 2013 and June 2025, Mr. Trump criticised the Fed's policies at least 145 times in public - notably on social media platformsOf these, 129 times Trump complained about the interest rate being too high and 16 times he complained about the interest rate being too low.
Frankel also looked at the reasons that influenced Trump's criticism of the Federal Reserve's monetary policy. Research points out that the only really important explanatory variable is whether Trump is in power: this factor explains 76% of the change in his criticism of the Fed's policy. In short, whenever he took power, Trump advocated loose monetary policy.
Trump will profoundly change the Federal Reserve independence
According to the western economic theory, maintaining independence of central bank can better achieve price stability and maintain economic growth。As a result, most Western countries have given central banks independence in legal form. In the United States, the Federal Reserve Act of 1913 prohibits the president from firing Federal Reserve chairmen and governors without justifiable cause. There has never been a precedent for a US president to fire a chairman or director of the Federal Reserve. Historically, most U.S. presidents have strictly adhered to these rules and the principles behind them.
Trump has ignored the laws and principles that underpin the authority of the Federal Reserve。In Trump's own words, he understands monetary policy better than Fed policymakers-"certainly more than Powell."
Trump wants to lower interest rates, and he wants to reshape the Fed's monetary policy decision-making mechanism by dismissing Fed Chairman Powell and Fed Chairman Cook.Such unconventional personnel policies will only panic the capital market。Even if Trump's appointment and dismissal are successful, and even if the Federal Reserve immediately cuts short-term interest rates, the long-term interest rates that are really important to households and businesses-such as commercial loan and home mortgage rates-are determined by the market's supply and demand for funds, not set by the Federal Reserve.
In the end, Trump's "firing storm" against the Federal Reserve will only make investors question the Federal Reserve's long-standing stance of stable, rational, and independent monetary policy, and worry more about the Fed's professional ability to contain inflation. You know,The Federal Reserve’s independence is the most important and stable cornerstone of the US economic policy framework.。
Mr. Trump's firing squall, which places the Fed's independence under his executive authority, will cause enormous unease in US and global capital markets. Perhaps that is exactly the kind of chaos Mr. Trump wants. Either way, however, the Fed's vaunted independence will be a casualty of Mr. Trump's chaotic policies.
This article was published exclusively on Tencent News