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U.S. President Donald Trump speaks next to Federal Reserve Chair Jerome Powell during a tour of the Federal Reserve Board building, which is currently undergoing renovations, in Washington, D.C., U.S., July 24, 2025.
Why is Trump threatening the Fed, and why does it matter?
On Thursday afternoon, just before golden hour, President Donald Trump threw a white hardhat over his flaxen coif and strode into the Federal Reserve building on Constitution Avenue.
The stated purpose of his visit to the world’s most influential central bank was almost comically mundane: he was there to inspect a building renovation project for cost overruns. Trump is, as he likes to remind people, a “builder,” so he knows an overpriced crown molding when he sees one. He says the $2.5-billion project, funded by Congress, is already more than $500 million over budget. The Fed disputes this number.
Sure enough, after a walking tour of the sites with Fed Chairman Jerome Powell, the two men sparred about the costs of the buildings that are currently being rebuilt by the Fed – and at least one that is not being built because, as Powell gamely pointed out, it was already built five years ago.
But the hardhat haggling was pantomime for a more serious dispute.
For weeks now, Trump has been insulting and pressuring the “numbskull” Powell to lower interest rates, in hopes that doing so will give the US economy, “the hottest in the world,” a boost. The midterms are, after all, approaching.
But Powell isn’t budging. He argues that with Trump’s tariff threats still nudging up prices, lower rates could set inflation soaring all over again. The Fed’s legally-mandated job is to keep inflation low and growth humming – without presidential meddling.
More alarmingly, Trump has recently pondered removing Powell – whom he nominated as Fed chair eight years ago – before his term ends next spring. Doing so would be an unprecedented assault on the Fed’s independence. Under the law, a president can sack a Fed chair only for serious violations of the law or ethics.
Disagreements over interest rate policy are not that. But an allegedly botched building renovation that has cost taxpayers hundreds of millions of dollars in cost overruns? Maybe it’s malfeasance enough. And while Trump said yesterday that firing Powell because of cost overruns would be a “a big move” that is “not necessary” right now, the visit sends a clear message: this is an issue that can be brought up again if Powell doesn’t, as Trump insists, “do the right thing.”
So what is “Fed independence”? And why is it a problem if it suffers?
To learn more I rang up one of the smartest global economy analysts out there – Rob Kahn, Managing Director of Global Macro at Eurasia Group. Our exchange has been edited for clarity and concision. Here goes.
Rob, why is central bank independence so important, and to whom?
When a central bank is subservient to the government, it will often make decisions to keep interest rates too low. And as a result you get too much money printed up and then more inflation.
There is a vast body of evidence that says that economies that have independent central banks do better. They tend to have lower inflation and higher growth. When everyone – financial markets, firms, households – can make longer-term investment and spending decisions based on stable accurate expectations about what the future will hold, they make better decisions and they have better outcomes.
Economies just perform better when individuals have reasonably stable expectations about what inflation's going to be this year, next year, five years from now.
If Trump forces Powell to cut rates, or replaces him with someone who does that, what might happen?
The first thing to remind people of is that the Fed doesn’t actually control all the interest rates in the economy. They control the so-called “federal funds rate,” which is the rate at which banks lend to each other. By doing that, they can influence all the other interest rates in the economy, but they don’t control them directly.
If the Fed were perceived to be cutting rates under pressure from Donald Trump, you might see that even though the Fed funds rate went down, other lenders would say, “Wow, in the longer term we’re going to have higher inflation, so we’re going to actually need higher interest rates ahead of that.” So even though the Fed rate goes down, the market rates for a lot of people could actually go up.
Why is Trump’s hardhat visit so alarming for people worried about Fed independence?
Well, if they can fire the Fed chair for overspending on a building project, then you know that any time a president has a disagreement with the Fed chair in the future, he can just come up with something and say, “oh, this is the real cause,” and fire him for that.
And that will effectively undermine the Fed’s independence. So Trump in a hard hat is really not about a renovation. This is really about whether the Fed can be independent in setting monetary policy. Don’t be fooled.
Three presidents have visited the Federal Reserve before Donald Trump
Graphic Truth: Donald Trump visits the Federal Reserve
Donald Trump is set to visit the US Federal Reserve building on Thursday to inspect its recent $2.5 billion structural renovation, amid an intensifying White House pressure campaign on Fed Chair Jerome Powell. Trump has been publicly urging Powell to slash interest rates by three points from the current level of 4.5%, and recently accused the Fed of mismanaging the renovation project — just days after briefly threatening to fire Powell. This marks only the fourth time in history that a sitting president has visited the central bank, which is meant to operate independently to ensure its decisions are driven by economic data, not political influence.
US President Donald Trump speaks as he attends a “Summer Soiree” held on the South Lawn of the White House in Washington, D.C., USA, on June 4, 2025.
Hard Numbers: Trump issues sweeping travel ban, BoC holds rates steady, US funds “self-deportations,” and more...
12: US President Donald Trump has banned visitors to the US from 12 countries: Afghanistan, Myanmar, Chad, the Republic of Congo, Equatorial Guinea, Eritrea, Haiti, Iran, Libya, Somalia, Sudan and Yemen. Another seven countries will face greater restrictions. The ban, which Trump based on national security grounds, takes effect on Monday.
2.75: The Bank of Canada held its key interest rate steady for the second time in a row, leaving it at 2.75% amid uncertainty about the extent and effect of US tariff increases. The bank said it may still cut rates later this year if the economy continues to struggle.
20: US intelligence believes Ukraine’s expansive drone attack on Russian airfields last weekend struck just 20 planes, destroying 10 – half the numbers claimed by Kyiv. Still, the damage was significant and Russia will respond “very strongly,” according to Trump, who spoke with Russian President Vladimir Putin on Wednesday.
$250 million: The US State Department has earmarked $250 million to cover travel expenses for migrants without legal status who chose to “self-deport.” The money has been repurposed from funds previously used to aid refugees.
31: Oilers forward Leon Draisatl scored with 31 seconds left in the first extra period, to give Edmonton a comeback win in game 1 of the Stanley Cup Finals against the defending champ Florida Panthers. As many of our readers will be (painfully) aware, a Canadian team hasn’t won the cup since 1993.
US Federal Reserve Chair Jerome Powell speaks to the media during a press conference at the Federal Reserve, in Washington, DC, on Wednesday, Jan. 29, 2025.
A tale of two central banks
North of the border, though, the Bank of Canada went ahead with its sixth cut in a row, this one a modest 25 basis points, bringing its interest rate down to 3%. The bank noted an inflation rate of about 2%, a soft labor market, and an unemployment rate of 6.7% in December – and looked ahead to a potentially rocky 2025 for the country economically, even as it expects GDP growth to pick up this year. Maybe.
Immigration rates are slowing in Canada, and the threat of Trump tariffs could drive the country into a recession and send inflation soaring. The Canadian Chamber of Commerce warns that a 25% duty alongside retaliatory tariffs would cost Canada 2.6% of GDP per year – roughly CA$78 billion, while the US economy would take a 1.6% percent hit, coming in at US$467 billion.
Should that happen, the two central banks may quickly align themselves on the need for more, perhaps steeper, rate cuts.
Buildings seen from Lake Ontario along the skyline of the city of Toronto, Ontario, Canada, on July 01, 2023.
Bank of Canada slashes interest rate, warns of tariffs
The Bank of Canada cut interest rates by half a point to 3.25% on Wednesday to kickstart some growth in the Canadian economy. Gov. Tiff Macklem indicated that further cuts would be more gradual.
Macklem said the outlook for the Canadian economy was uncertain, in part because President Donald Trump has threatened to impose tariffs on Canadian imports.
“If those things happen, they will have a big impact on the Canadian economy and will dramatically impact our forecast,” he said. “Let’s hope that does not happen.”
Bank of Nova Scotia economist Derek Holt said the rate cut was so steep that it seemed “like an apology note” after slowing the economy with earlier inflation-fighting increases.
Canada's economy has been shrinking on a per capita basis for six quarters, with most growth associated by an immigration-driven population increase. Figures released last Friday showed the unemployment rate rose to 6.8%, up from 6.5%.
But Macklem said Canada is not in a recession: “We’ve not seen widespread lay-offs or widespread job losses typically seen in a recession.”
Justin Trudeau welcomed the rate cut, clearly hoping to avoid more economic bad news while his Conservative opponents prosecute him as a hapless economic leader.
FILE PHOTO: Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., September 18, 2024.
Interest rate cuts are doing their thing. Will more come soon?
Recent rate cuts by the Federal Reserve and the Bank of Canada, along with lower inflation rates in both countries, are spurring … talk of more cuts. This includes a potential “jumbo” cut this month in Canada.
A former deputy governor of Canada’s central bank is arguing for a half-point cut when the bank meets in late October, and he’s betting on it. Paul Beaudry argues that the economic stimulus would spur the Canadian economy – by boosting consumer and business spending.
Statistics Canada reports that the country’s inflation rate was 2% in August while the US Bureau of Labor Statistics pegged the rate south of the border at 2.5%.
In September, the Fed cut rates by 50 basis points, its first trim in four years. That had effects on both sides of the border, given how close the US and Canadian economies are linked. Some Canadian mortgage rates on offer ticked down after the cut, dipping below 4%. So too did their US counterparts, triggering an immediate jump in real estate hunting and refinancing.
Experts believe the Fed will embrace more cuts in the coming months, aiming for a target of 4-4.25%, with even lower rates on the docket for 2025. The Fed and Bank of Canada will drive borrowing costs down and offer some relief to consumers and borrowers as both economies continue to level out.A trader works on the trading floor at The New York Stock Exchange (NYSE) following the Federal Reserve rate announcement, in New York City, U.S., September 18, 2024.
The Fed goes big for its first rate cut since 2020
The Federal Reserve dropped interest rates by half of a percentage point on Wednesday, its first cut since 2020. The move – larger than the .25 bps that was also under consideration – is a show of confidence that inflation is moving sustainably toward 2%, and it aims to boost to the labor market. The cut will bring the benchmark federal-funds rate to a range between 4.75% and 5%.
The Fed decided that keeping rates high “was becoming restrictive and worried the labor market could turn sour quickly,” according to Robert Kahn, Eurasia Group’s managing director of macro-geoeconomics. “They didn't want to fall behind the curve and decided to get a quick start at easing.”
In the short term, anticipation of rate cuts boosted Wall Street, with the Dow Jones Industrial Average hitting a new record on Wednesday. Yields on the 10-year Treasury note stood at 3.64% on Tuesday, up slightly from a 52-week low recorded on Monday. It also bodes well for Kamala Harris’ campaign, since high interest rates had been souring voters’ views on the economy.
In the long term, the Fed “looks like they will move gradually from here,” says Kahn. “It's a quick start to a long journey.” Inflation expectations are also unlikely to be affected because “inflation has been coming down recently, so any new risks will take time to show themselves.”
Fed poised for 50 basis point rate cut
Breaking: Fed poised for 50 basis point rate cut
The Federal Reserve appears set to drop its benchmark interest rate by 50 base points today. That lending rate – which influences borrowing costs broadly – can put the economy in a chokehold when rates are high, or stimulate it when lowered.
According to Eurasia Group’s Managing Director of Global Macroeconomics Robert Kahn, “enough progress has been made on inflation to begin the process of easing financial conditions with a big first move to protect against recession.”
Lawmakers have repeatedly called on the Fed to lower rates over the past year. Still, the independent body has resisted, waiting for economic data to indicate that a soft landing – where inflation is tamed without a recession – appeared to be in sight. Inflation currently stands at 2.5%, down from its peak of 9.1% in 2022 and nearing the Fed’s 2% target.
Election effect: It takes time for monetary policy to make an impact, so any rate cut is unlikely to have a material effect on the economy before the election, but it will still have influence.
“It's possible that the cut, and the boost to markets that it could provide, gives a lift to sentiment surrounding the economy that helps the Harris campaign,” says Kahn. But, on the downside, “it will validate Donald Trump’s belief that the Fed is political and the move is being done to help his opponent.”