Donald Trump warns Fed chief against cutting interest rates before election

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US President Donald Trump warned Jerome Powell against cutting US interest rates before the presidential election in November, but said that if elected he would allow the Federal Reserve chairman to serve out his term if he “does the right thing”.

The Republican candidate acknowledged in an interview with Bloomberg News that the central bank “maybe” will cut interest rates before the Nov. 5 election, but added, “It’s something they know they shouldn’t do.”

Trump also addressed growing concerns in financial markets that he may politicize the Fed, starting with his attempt to force Powell out before the end of his term as Fed chairman in 2026.

“I’ll let him finish his talk, especially if I think he’s doing the right thing,” the former president said. The interview with Bloomberg was conducted in late June but was released during the Republican convention in Milwaukee on Tuesday.

Investors have been concerned that the former president might seek to remove Powell, who is widely seen on Wall Street as an effective chairman who has led the Fed through one of its worst inflation shocks in decades.

But Trump's warning that he wants to see Powell do the “right thing” may leave some questioning the Republican nominee's pledge not to push for his early replacement.

Powell said Monday that the central bank is gaining more confidence that inflation is falling back to the Fed's 2 percent target, raising expectations that the central bank will deliver its first interest rate cut since 2020 at its September meeting, just six weeks before the election.

Trump has relentlessly attacked President Joe Biden on the economy, blaming his Democratic rival for soaring inflation as the Covid-19 pandemic chokes global supply chains and soaring energy costs after Russia's full-scale invasion of Ukraine.

Despite nominating Powell to be Fed chairman in 2017, Trump has repeatedly attacked the Fed chairman during his tenure as president for not cutting interest rates amid his trade wars, and once asked whether the Fed chairman was a bigger enemy of the United States than Chinese President Xi Jinping.

Any effort by Trump to replace Powell before the end of his term would likely face a legal challenge, lead to a showdown with the central bank, and risk significant market volatility.

The U.S. Federal Reserve has been debating when to cut its benchmark interest rate from a 23-year high of 5.25% to 5.5%, a level it has held since July. With price pressures easing and the labor market slowing, officials have signaled that lower borrowing costs will soon be necessary.

The Fed’s political independence has long been seen as essential to its ability to manage the U.S. economy, and Powell has stressed that its decisions are based solely on the health of the economy.

Earlier this month, Obama told congressional leaders: “Our commitment is to make decisions when they need to be made, based on incoming data, evolving forecasts, and a balance of risks, and not with regard to other factors. And that includes political factors.”

In the interview with Bloomberg, Trump also took aim at Taiwan, saying the island nation should pay the United States for the implicit security guarantee provided by the U.S. military.

Echoing a claim that Taiwan had “stolen our chip business,” he said, “Taiwan should pay us for defense. You know, we’re no different than insurance companies. Taiwan doesn’t give us anything.” Although Taiwan buys American-made weapons for its defense forces, the United States also regularly provides it with military aid.

China claims Taiwan as part of its territory and threatens to attack if Taipei refuses to submit to its control indefinitely. The United States has long acted as the island nation’s de facto security guarantor with a vague commitment to help it defend itself.

Under the Taiwan Relations Act, a U.S. law, Washington considers any effort to determine Taiwan's future by non-peaceful means to be of grave concern to the United States, and commits to providing Taiwan with defensive weapons and maintaining the United States' ability to resist force or coercion that would jeopardize Taiwan's security.

Trump noted that Taiwan is 9,500 miles from the United States and just 68 miles from China, and said Beijing “could just bomb it,” only hesitating because it would destroy the island’s chipmaking industry. Taiwan makes more than 90 percent of the world’s most advanced semiconductors.