Trump says rate cut will be litmus test for new Fed chair

[WASHINGTON, DC] US President Donald Trump has indicated he would judge a new US Federal Reserve chair by whether they immediately move to cut interest rates.

Trump responded “yes” when asked in an interview with Politico if a quick reduction of borrowing costs would be a litmus test for his handpicked central bank leader.

In the interview on Tuesday (Dec 9), Trump said that current Fed chair Jerome Powell also ought to cut interest rates, and added: “I think he’s a combination of not a smart person and doesn’t like Trump.”

Trump’s comments were a key signal to potential new Fed chairs on what the president would expect from them if they were to be nominated to lead the central bank.

White House national economic council director Kevin Hassett, whom Bloomberg had reported as the frontrunner in the race for Fed chair, said in November that the data suggests that the central banks should cut rates “right now”.

On Monday, Hassett told CNBC that it would be irresponsible for the Fed to lay out a plan where it aims to take interest rates over the next six months, saying the central bank chair’s job is to watch the economic data and then make decisions.

Earlier this year, Trump repeatedly called for the Fed to get its benchmark down below 2 per cent, versus the current target of 3.75 to 4 per cent. Powell and his colleagues are widely expected to take the benchmark down by 25 basis points in a decision due Wednesday.

Powell’s tenure as chair is set to end in May 2026, though his term as a Fed governor does not expire until 2028. 

Trump has repeatedly said that he has already made up his mind about who he wants to lead the Fed, but he will not publicly announce his decision until early next year.

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In addition to Hassett, other finalists include Fed Governors Christopher Waller and Michelle Bowman, former Fed Governor Kevin Warsh and BlackRock’s Rick Rieder. 

Trump did not respond to questions in the Politico interview about if he had spoken with his potential candidates to lead the central bank. BLOOMBERG