Trump Wants Interest Rates at 1%: What It Would Mean for Americans - Newsweek

President Donald Trump has called for Federal Reserve policymakers to slash interest rates, once again arguing that elevated borrowing costs are holding his economy back from a boom.

On Wednesday, the 12-member Federal Open Market Committee (FOMC) unanimously voted to raise interest rates amid "elevated" inflation and uncertainty, with the central bank’s new Chair Kevin Warsh presiding over the first hike since 2023.

Many experts saw the bump as sensible given the evolving inflation picture, and said it helped dispel concerns about an erosion of Fed independence under the leadership of Trump’s hand-picked chief. But the president himself called the increase "unfortunate" and said rates "should be 1 percent, or less, because we are the Best Credit in the World - BY FAR."

However, economists—and comparable cases of premature easing in other countries—point to significant economic repercussions if the central bank bowed to these demands.

When approached for comment, the White House referred Newsweek to Trump’s press gaggle in Charlotte, North Carolina, on Wednesday, during which he said interest rates were "too high" and "not appropriate." The president added that most of the FOMC are "very hostile," and said he had told Warsh to "vote with the board because it's not going to matter."

The FOMC raised the federal funds rate to 3.75-4.00 percent from 3.50-3.75 percent, a 25 basis point bump designed to ease inflationary pressures, and which will feed into borrowing costs nationwide.

While economists largely agree the overall consequences could prove dire, they acknowledge that certain parts of the economy could benefit if the Fed changed course and slashed interest rates to 1 percent—though those benefits would likely be temporary and dwarfed by the broader impacts.

Vicky Pryce, chief economic adviser at the Centre for Economics and Business Research (CEBR) in London, told Newsweek that lowering rates as Trump hopes would "in theory" provide a boost for equities and sectors like retail and travel.

Douglas Holtz-Eakin, president of the center-right American Action Forum think tank, said that a "modest decline" would ease the rates paid on mortgages, car loans and other forms of credit, which would in turn "encourage more household and business borrowing and spending, which would translate into more employment growth, but also higher inflation."

The significant cuts Trump has called for, however, would result in more severe—and harder to predict—effects.

Interest rates were held near zero during the COVID pandemic as the Fed tried to boost spending and business activity and stop the economy from slipping into a deeper recession, but experts believe applying the same logic in 2026 would fail to provide the economic lift Trump envisions.

"The impact would be disastrous," Jonathan Portes, a professor of Economics and Public Policy at King's College, London, told Newsweek. "Partly because it would be highly inflationary to have interest rates at 1 percent when inflation is over 3 percent and unemployment relatively low."

Though the process is not automatic, lower interest rates have historically created conditions that exacerbate inflation, as they increase borrowing, spending and overall demand even when the economy produces the same amount of goods and services.

South African economist Desmond Lachman, a former deputy director at the International Monetary Fund (IMF), told Newsweek that Trump’s suggestion would be "economically insane."

Beyond the direct inflationary impacts, Lachman said slashing rates this way would "signal to markets that the U.S. was on the path to higher inflation," which could trigger a sell-off in American Treasuries and "precipitate the mother of all U.S. government bond market crises."

"The last thing that he needs is for bondholders to dump their Treasuries which among other things would send mortgage rates and other borrowing rates through the roof," he added.

"Dropping the rate to 1 percent would most likely produce panic in the bond market, with investor afraid of a sharp rise in inflation," Holtz-Eakin likewise told Newsweek. "Dumping of bonds would actually raise interest rates, with the likely result being a sharp recession."

As some economists noted when Trump was contemplating who to nominate as a replacement for Jerome Powell, lowering rates prematurely at a premier’s wishes had in the past inaugurated profound and lingering economic crises.

One of the clearest modern examples of this is Turkey.

Over several years beginning with its transition to an executive presidency in 2018, President Recep Tayyip Erdogan, who once called interest rates "the mother and father of all evil," pressured Turkey’s central bank to slash rates despite accelerating inflation.

Erdogan fired several central bank governors who tried to tighten monetary policy and installed a loyalist in 2021 to carry out his monetary agenda. This was followed by runaway prices, with Turkey’s annual inflation rate rising to over 80 percent for several months in 2022 and never fully dropping.

Trump’s combative relationship with Warsh’s predecessor, and his calls for major interest rate cuts, have meant the Fed chair’s early tenure has been watched closely for any sign the central bank will bend to the administration’s wishes.

However, Trump has acknowledged that Warsh has little influence over rate decisions themselves.

"I know he’d love to see lower interest ​rates, but he’s got a board, and it’s a political board, ​and they want to keep rates up. But we fight through ⁠rates," the president said during a July press conference.

"The Fed Board, with its great new leader, must get smart - BE PATRIOTS for a change," Trump posted to Truth Social in early September: "High interest rates put the U.S.A. at a very unfair disadvantage, and I won’t allow that to happen!"

Vice President JD Vance, meanwhile, said the administration’s official position is that the Fed "should be lowering interest rates."

"We’re doing a lot of things to try to keep those interest rates down, but it would be nice to have some help from the Federal Reserve," he told reporters earlier this month.

Therefore, beyond the direct economic consequences, slashing rates under such pressure from the administration would severely undermine the perception of the U.S. central bank as an independent and trustworthy policymaking entity, experts say.

"A Federal Reserve that bows to the demands of a sitting U.S. president would be an extremely concerning signal, undermining the very credibility the institution relies on to keep inflation expectations anchored and borrowing costs low," according to Matthew Ryan, head of market strategy at the financial technology firm Ebury.

"This economic cost and damage to credibility would be far greater than the repair to any short-term political friction—precisely why we see it as unthinkable that the Fed will bow to Trump’s demands," he told Newsweek.

Such a move would signal "the end of Fed independence," Portes said, adding that it would risk a "serious market disruption."

Lots of losers, and no winners," he added.

Contact Newsweek editors on this story: Tobias Meyjes and Sam Wilson.