Are Trump’s Criticisms of Fed Policy Based on Economic Conditions? by Jeffrey Frankel

Central bankers generally use the “Taylor rule” to guide their policy decisions, raising rates when inflation is above target or the economy is growing too quickly, and lowering them when the opposite is true. Might Donald Trump have his own system for determining the optimal interest-rate level at a given time?

CAMBRIDGE – US President Donald Trump has lately been heaping abuse on Federal Reserve Chair Jerome Powell – not least over the supposedly mismanaged renovation of the Fed’s headquarters – and even drafted a letter sacking Powell, whose term runs until May 2026. In Trump’s view, Powell should force interest rates down by 300 basis points – or let someone else do it. Is there any logic behind Trump’s demands? To answer this question, it is revealing to look statistically at what determines whether Trump criticizes the Fed for interest rates that are too high versus too low.