What did Donald Trump do today?
He tried and apparently failed to bully Jay Powell.
Trump took a tour of the Federal Reserve Building today, where he lied about the cost of its renovation to harangue Fed Chair Jay Powell about dramatically lowering interest rates. Presented by Trump with false numbers about the cost of the building project, Powell immediately pushed back, pointing out that Trump was counting in "cost overruns" a building that had been finished and paid for five years ago.
Powell's staff also pointed out that the ongoing renovations are suddenly much more expensive because of Trump's tariffs, particularly on steel—as are all building projects in the United States at the moment. That kind of inflationary economic drag is precisely why the Fed has resisted lowering rates, which would make tariff-fueled inflation even worse.
Trump approved the renovations during his first term, as well as expensive changes to the original plan that went beyond what the Fed wanted. He also appointed Powell, who he's called a "numbskull" for not pushing the Federal Reserve to precipitously drop rates.
Trump wants lower rates for two reasons. The first is personal: in spite of massively ballooning paper wealth thanks to his crypto schemes, Trump is still heavily in debt on his properties, owing more than $600 million on them. Refinancing at dramatically lower interest rates would save him hundreds of millions of dollars going forward. It would also likely help Trump's businesses, which were struggling before his re-election, in other ways. Unlike most Americans, paper billionaires like Trump can only borrow money that their income or collateral would let them pay back, so unlike Trump, they can't use near-zero rates to make speculative investments.
The second reason is political: for all his talk of shrinking government, his recently-passed budget bill balloons the amount of money the Treasury will need to borrow to completely unprecedented levels. If U.S. debt can be sold at lower rates—and there's no guarantee that yields on Treasury bonds will follow the Fed funds rate down—then it would take a little bit of the sting out of the massive hit to the national debt.
Interest rates are relatively high at the moment, and the expectation is that the Fed will drop them incrementally once or twice this year. But doing so because Trump or any president demanded it would almost certainly cause investors to lose faith in the Fed's independence—and that would make American debt much more expensive to pay off, and American businesses much less attractive to invest in.
Why does this matter?
- The health of the American economy is much, much more important than Donald Trump getting a cheaper mortgage.