For a long time, Donald Trump has done everything he can to lower the key interest rate in the US, which today stands at 3.50 to 3.75 percent.
He has come out hard against central bank chief Jerome Powell and the rest of the interest rate committee in the US central bank, and believed that the interest rate should be one percent, or less. A lower interest rate is usually positive for the politicians, since it means that people can afford better, at the same time that the borrowing costs for the state will be lower.
Wanted to kick
Trump has also made attempts to fire members of the interest rate committee who do not vote for interest rate cuts, and is now in the process of appointing a new central bank governor who is expected to be far more positive about lower interest rates.
Also read: Massive interest rate defeat for Donald Trump
But Nordea Markets is now out with a new report in which they conclude that Trump is not getting his way at all. This is completely at odds with what the financial markets expect, which expect two more interest rate cuts, also what the central bank itself has indicated.
– We think they underestimate the potential for inflation to be higher than they themselves think, says Ole Haakon Eek-Nilsen in Nordea Markets to Nettavisen.
Many expect interest rate cuts due to the fact that few jobs are being created in the US at the moment. But Eek-Nilsen points out that it is not necessarily a problem, due to Trump’s strict immigration policy.
– Immigration has fallen sharply and is expected to fall even more. Combined with deportations, this can lead to a tight labor market. This puts pressure on wages and price growth, says Eek-Nilsen.
The central bank’s main task is to keep unemployment and inflation low.
Read also: The US central bank with another interest rate cut
X factors Donald Trump
The biggest uncertainty related to the Fed’s future actions is political influence, especially from Donald Trump. Trump has stated on several occasions that the central bank interest rate is far too high and has a stated desire to change the composition of the Federal Open Market Committee (FOMC), which is the committee that sets the interest rate at the Federal Reserve.
Trump has the opportunity to appoint a new central bank chief after Jerome Powell’s four-year term expires. Although Powell is a governor on the Fed board until 2028, it would be unusual if he remained on the board after he had to step down as chief. Trump has already appointed loyal members to the board.
Read also: Rare defeat for Trump: Republicans in Indiana voted no to a new electoral map
– Kevin Hassett, who is said to be the most likely heir, is also known to be quite a Trump loyalist. And of course he has also said that he envisions that the interest rate should have been lower, says the Nordea strategist.
Eek-Nilsen strongly warns against the economic consequences if the Fed gives in to political pressure:
– It may be that they cut anyway, but that could have some interesting consequences, such as the dollar weakening sharply and prices rising, says the Nordea strategist.
