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Trump wants Federal Reserve to cut interest rates. Wall Street is starting to agree

Trump wants Federal Reserve to cut interest rates. Wall Street is starting to agree
Larry Kudlow, President Trump's top economic advisor, said Trump wants swift action to lower interest rates. (Susan Walsh / Associated Press)

President Trump wants the Federal Reserve to cut interest rates immediately, his top economic advisor said Friday, making it clear that the president is still angry with the central bank.

The U.S. federal funds rate is sitting just shy of 2.5%, the highest in more than a decade although low by historical standards. Trump and advisor Larry Kudlow want it to be about 2%.

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“I am echoing the president’s view. He’s not been bashful about that view,” Kudlow said on CNBC on Friday. “We don’t want to threaten this great recovery.”

Fed Chairman Jerome H. Powell — a Trump appointee — said this month that the central bank does not plan to raise interest rates this year. The central bank’s next move could be an increase or a decrease, Powell said, depending on how the economy looks in the months ahead.

According to Kudlow, Trump wants swift action, although he said the White House doesn’t see this as an “emergency.” Last week the president nominated an ally, Stephen Moore, to fill an open seat on the Fed’s board of governors. Moore told conservative radio this week that he would advocate for a cut in interest rates if the Senate confirms him to the post.

Wall Street has started to price in a rate cut later this year, a signal that investors think that’s needed. According to the FedWatch tool where traders bet on what the central bank will do with interest rates, more than 40% think the Fed will reduce rates once and 20% now agree with Trump that the Fed will cut rates twice — or more.

The Fed is supposed to be independent of politics and has spent years trying to build up credibility that it will act in good faith for the long-term needs of the economy, even if it means a bit of pain in the short term. Some politicians, including President George H.W. Bush, blamed the Fed for costing them reelection.

Trump argues that the economy could be growing at a 4% annual rate if the Fed didn’t put interest rates as high as they are. Few economists agree that the economy could grow that fast, but views are mixed on whether the Fed made a mistake by raising rates a quarter of a percentage point in December. The U.S. economy expanded at a rate of about 3% last year, and most expect it to grow about 2% this year.

Most economists think the economy is slowing, which is why they believe the Fed might have to cut rates. Trump wants to make the economy a central part of his reelection campaign and doesn’t want to see it decelerate.

In December, Trump asked close confidants if it would be possible to fire Powell, a move many say would not be legal. Moore advocated for Trump to dump Powell, but says he now regrets that. Kudlow said last week that he thinks Powell is doing a decent job and doesn’t believe it’s possible to fire the Fed chair.

On CNBC on Friday, Kudlow tried to say that the White House is just sharing its view on what the Fed should do, not stating what it must do.

“It is up to the Fed. I’m not here to criticize the Fed .... This is our point of view,” he said.

Stocks rallied Friday to close out their best quarter in years as Wall Street has welcome the Fed’s halt in hiking interest rates. The Standard & Poor’s 500 index has gained about 13%, its best performance since the third quarter of 2009.

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