President Donald Trump renewed pressure on the Federal Reserve Monday, urging Chair Jerome Powell to slash interest rates to 1% or lower—despite strong economic data that economists say doesn’t justify such a dramatic move.
“We should be at 1%. We should be less than 1%,” Trump declared, criticizing the Fed for keeping its benchmark rate in the 4.25% to 4.50% range.
While 1% interest rates have existed in the past, economists caution they’re typically a response to crisis—not signs of a booming economy. Rates that low historically coincided with major downturns such as the post-9/11 recession, the 2008 financial crisis, or the COVID-19 pandemic—periods marked by high unemployment and weak growth.
Currently, the U.S. is far from such a scenario. With unemployment at 4.1%, inflation around 2.5%, and GDP growth at about 2%, most economists see little reason for steep rate cuts.
Experts Warn of Political Pressure and Inflation Risks
Gregory Daco, chief economist at EY-Parthenon, warned that a sudden rate drop could undermine the Fed’s credibility and spark inflation fears. “If the Fed suddenly slashed rates to 1%, markets might interpret that as political interference,” he said. “That could unanchor inflation expectations and cause long-term rates to spike.”
The Fed’s dual mandate is to maintain stable prices and full employment—not to lower borrowing costs for deficit spending or stimulate markets unnecessarily. A drastic cut now, many experts argue, could lead to overheating and revive inflation just as it’s beginning to cool.
Trump’s Push Isn’t New—But Economically Unfounded
Although Trump has long criticized Powell and the Fed, including in his first term, economists say the data simply doesn’t support such a sharp move today.
“A 1% rate is not unheard of,” said Daco. “But it’s never been implemented when the economy was this strong.” Previous presidents—including George W. Bush and Barack Obama—only saw such low rates during periods of major crisis: the Iraq War fallout, the Great Recession, and the pandemic.
Fed’s Tools and Limits
The Fed controls the federal funds rate, which influences—though doesn’t directly set—rates for mortgages, business loans, credit cards, and Treasury yields. While Trump has focused on long-term borrowing costs, such as U.S. Treasury rates, those are driven by broader market forces like inflation expectations, deficit levels, and global demand for U.S. debt.
The recent passage of Trump’s massive “One Big Beautiful Bill Act,” which expands spending, is expected to drive deficits higher—potentially pushing interest rates up, not down.
Concerns About Fed Independence
Trump has even sent Powell a handwritten list of global central bank rates, penciling in where he thinks U.S. rates should be. But any perception that the Fed is bowing to political pressure could rattle markets.
In fact, when Trump previously floated the idea of firing Powell, bond yields spiked—signaling investor concern over central bank independence. Trust in U.S. institutions remains a key reason the country enjoys relatively low borrowing costs.
No Economic Rule Backs Trump’s Rate Goal
Fed officials typically rely on policy models—such as the Taylor Rule—that consider inflation, employment, and economic output to guide rate decisions. None of those formulas support a rate as low as 1% in the current climate.
Trump’s proposal, critics warn, risks undercutting that framework entirely.
“Cutting rates that far, that fast, would not just be economically unjustified—it would be dangerous,” Daco said. “Markets could see it as a red flag that the Fed is no longer in control.”
