I renewed a CD recently as power of attorney for a relative for 3.6% for seven months. Given that inflation is 3.3% and rising, there is little net gain in the current rate above inflation. Money is devaluing as fast as it collects interest. Yet President Donald Trump is adamant that rates should come down a lot and is frustrated in his lack of control over the Federal Reserve to make that happen. He is not a patient man and has viewed Fed Chairman Jermone Powell as an obstacle to the monetary policy that he has been demanding. He wants lower rates, which would boost the economy. If folks can borrow money cheaper than the rate of inflation, then there is a net negative interest rate which encourages borrowing.

That sounds like the 1970s to me. Until it all catches up to the economy … and then you get the 1980s. President Trump has shown no real concern over the massive Federal deficit in his policy or budgets in either of his two terms. A 50% hike in military spending is another $500 billion coming from somewhere. The Big Beautiful Bill budget model did not have the cost of wars in it. The Fed has been slower to reduce rates than the president desired because of concern over inflation. Lower rates would serve to free inflation. Higher inflation in turn, however, would devalue the federal debt, which appears to be the direction that Trump is going. This debt will never be paid back in current dollars. There has been no appetite for austerity in the administration because that means doing things with the budget that are politically unpopular. They do propose lower entitlement spending but to a limited degree that doesn’t cause alarm, or better described “a revolt,” which is not enough to offset increased proposed spending. Budgets are nowhere near balanced.

The Fed controls short-term rates but the bond market sets mortgage and Treasury Bond rates. Taking the Fed funds rate lower doesn’t necessarily mean the bond market will endorse that move. In fact, short-term rates and bond rates have diverged as is, with the bond market balking at falling further.

U.S. Treasury yields are rising relative to the debt market as a whole to attract needed coverage. According to Fortune, “The increase in the U.S. Treasury security supply is compressing the safety premium that U.S. Treasuries have traditionally commanded — an erosion that pushes up borrowing costs globally,” the IMF said in a report issued.”

The current Fed is not cooperating with Trump’s plan for monetary policy, and this has led to a falling out between the president and the fed chairman. Powell has endured endless rhetorical recriminations from the president that have by any standards been brutal, yet has held his ground. In May 2025, Powell said: “It doesn’t affect our doing our job at all.” “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” he said. A federal judge agreed with that assertion.

The Fed was designed to be independent and is not supposed to do what any president, not just this one, wants done. A Board of Governors sets rates and policy. The Fed sets monetary policy, and not the president, for good reasons. A power thirsty president would manipulate monetary policy for political gain. That would never happen, right? The independence of the Fed was meant to see to it that it doesn’t.

The Fed has a dual mandate of seeking full employment and neutral inflation considered to be 2%. Given that the current rate of inflation is 3.3%, the Fed is holding tight on rates. Trump wants to goose the economy so the growth rate increases. That would stimulate borrowing at the expense of savers. All current CD rates do now is barely cover the current rate of inflation. Lower interest rates would mean money in the bank would lose value. It is impossible to both stimulate growth with an expanding money supply and lower interest rates and maintain benign inflation.

The president appoints the fed chairmen but cannot fire them without “cause” as defined in contract law. That is what insulates Fed policy from the White House. Trump demanded that the Department of Justice find cause so he could eliminate both a Fed governor, Lisa Cook, and Fed Chairman Powell from their posts. This is contrived misuse of the Department of Justice. It was recognized as such by the courts and has been blocked by the legal system. The fact that a Fed Chairman has the power that he does absolutely irks this president into agony. He must bring this power under his prevue, being who he is. Powell’s term expires May 15 as Fed Chairman, although he can remain on the board until Jan. 31, 2028. Trump appointed Kevin Warsh to be Powell’s successor, but this requires Senate confirmation approval. There is a key senator, Thom Tillis, that is blocking the Warsh nomination in committee under the demand that the trumped-up charges against Powell be dropped. Right now, it is a standoff, with most thinking Trump will not concede. He doesn’t want Powell to stay on the board, and this is the only way to remove him. Powell will continue as chair pro tem until a successor is confirmed. Theoretically, he could remain chairman until his term on the board expires.

While Warsh has advocated in the past for Fed independence, the president’s SCOTUS nominees professed that they would leave law with long precedent alone during confirmation hearings and then quickly overruled precedent when on the court (Roe versus Wade). Expect something similar from Warsh. Warsh’s resume would appear that he is competent to become Fed Chairman other than the fact that Trump would only appoint someone who has capitulated Fed independence to Trump. The president is not going to all this trouble just to get a new Fed Chairman that doesn’t follow his orders. He intends to control both fiscal and monetary policy. The sooner that Warsh is confirmed, the closer the central bank is to lower ing rates. Rates are set by the board, so that is why Trump wants Powell and Cook removed as board members so he can stack the board with his cronies.

The president governs with uncertainty and chaos, both of which are anathema to the bond market. That kind of interaction between the Fed policymaking and the president is the kind of uncertainty that the bond market abhors. He is going to meddle, already saying if Warsh deviates from his desired monetary policy that, like Powell, he would sue him too. This is a Rubicon of sorts for debt markets.