President Trump has advocated for a lower federal funds rate several times this year. Following the latest consumer price index (CPI) report, which tracks inflation, he’s making his point clear again.
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“CPI JUST OUT. GREAT NUMBERS! FED SHOULD LOWER ONE FULL POINT. WOULD PAY MUCH LESS INTEREST ON DEBT COMING DUE. SO IMPORTANT!!!,” said Trump on Truth Social.
Inflation rose by 0.1% month-over-month (MoM) and 2.4% year-over-year (YoY) in May. Economists were expecting a 0.2% monthly rise and a 2.4% yearly rise. Core inflation, which strips out volatile food and energy prices, increased by 0.1% MoM and 2.8% YoY. Both figures were below the estimates of 0.3% and 2.9%, respectively. The Fed raises rates to combat inflation, meaning that it could lower rates when inflation approaches its 2% inflation target.
Lower Interest Rates could Stimulate the Economy
As Trump mentioned, a lower federal funds rate would result in a lower interest payment on U.S. debt that is set to mature soon. It could also provide the stock market with a boost because both corporations and individuals would be able to borrow money at a lower rate. That could result in a higher corporate growth rate and elevated consumer spending.
The Fed will likely keep the rate unchanged between 4.25 and 4.50% at the upcoming Federal Open Market Committee (FOMC) meeting on June 17 and 18. However, the CME FedWatch tool assigns a 16.5% chance, up from 14.4% yesterday, that the Fed cuts by 25 basis points during the July FOMC meeting.
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