Trump Prepares to Own the Economy as Fed Leadership Shift Nears
President Donald Trump states, “I expect to nominate a new Federal Reserve chair this month.” When that moment arrives, Trump will have exhausted his justifications: This will officially be recognized as his economy, for better or worse. During the initial year of his second term, Trump has predominantly attributed America’s affordability issues to two individuals: Former President Joe Biden and Fed Chair Jerome Powell, whom he claims are responsible for mismanaging the economy and permitting prices to escalate uncontrollably. However, those justifications are already proving ineffective. Excuse No. 1) Biden. Trump persists in criticizing Biden over elevated inflation levels; however, Biden has not been in office for a full year, and recent polls indicate that Americans are increasingly withholding their trust from Trump. In a recent poll regarding the economy, 61% of Americans indicated that Trump’s policies have “worsened economic conditions in this country.” A greater percentage attributed the economic direction to factors other than Biden. Excuse No. 2) Powell. Trump began to voice his criticisms of his 2017 selection for Fed chair almost right after resuming office, denouncing Powell for maintaining interest rates above Trump’s preferences. Powell has recognized that the Fed reacted too late to the escalating inflation in 2021 and 2022, which has led to him being dubbed “too late” by Trump, who uses this moniker to criticize Powell on social media. However, Trump asserts that Powell is once again tardy, contending that lower interest rates would aid in reducing mortgage rates and unfreeze the stagnant housing market.
Despite Powell being Trump’s own selection to head the Fed, Trump has expressed that his nomination was an error, asserting that the next Fed chair will swiftly reduce rates. When that chair is appointed, likely in May when Powell’s term as chair expires, Trump will have claimed the economy for himself. That could be a politically risky proposition for the president. One of the significant risks associated with Trump’s economic blame game is that the president has likely set unrealistic expectations regarding the capabilities of the new Fed chair. While the Fed chair holds significant sway over the voting members of the rate-setting Federal Open Market Committee, they are ultimately just one of 12 votes and cannot unilaterally determine interest rates. Trump has several Federal Reserve appointments to make this year, and appointing individuals with similar views could facilitate a transition to lower interest rates – though this outcome is not assured. Even if the next Fed chair manages to lower rates significantly in 2026, it remains uncertain whether this would substantially alleviate America’s affordability issues. It could potentially exacerbate the situation. Lower interest rates can decrease businesses’ borrowing costs, thereby unlocking capital for hiring and other expenses. Over time, that can contribute to an improvement in the job market, but it may also lead to an increase in prices. Increased employment opportunities can result in higher salaries, subsequently driving greater consumer demand. Adjustments in interest rates may require several months to permeate the economy, and the Fed has already reduced rates in three consecutive meetings to conclude 2025. Reducing rates further poses the risk of a prolonged resurgence of inflation. Lower interest rates could, however, assist in reducing mortgage rates. The two are not directly connected; home loan rates are more closely associated with long-term US Treasury yields.
However, those typically adjust in unison over time with the Fed’s short-term rate changes. The elevated rates have undeniably impacted the housing market, and a decrease in mortgage costs could potentially open up opportunities for certain first-time buyers. A decrease of just one percentage point could reduce the monthly expenses of homeownership by hundreds of dollars, translating to savings of hundreds of thousands of dollars in long-term interest payments. However, reduced mortgage rates would not address the elevated housing prices, which are largely influenced by a significant supply shortage. Goldman Sachs reports that America must construct an additional 4 million homes to match the demands of population growth. This has led to persistent affordability challenges in key urban centers, particularly in New York and San Francisco. Lower mortgage rates could potentially worsen America’s increasing wealth divide, allowing existing homeowners to refinance their mortgages and access their home equity – while contributing minimally to the much-needed supply in the market. Ultimately, the president has limited ability to influence the trajectory of the US economy – a $30 trillion entity that federal legislation and executive orders exert only minimal control over. Trump has already implemented policies that influence Americans’ affordability – both positively and negatively. According to the reports, tariffs have increased the average American household’s expenses by $1,100 in 2025.
Trump’s spending and tax bill is projected to provide millions of Americans with a larger tax return in 2026; however, it is also anticipated to displace millions from Medicaid coverage. He has successfully persuaded numerous drug companies to reduce prices for Medicare patients and proposed $2,000 tariff rebate checks to be distributed prior to this year’s midterms. The policies in question, while impactful for the financial situations of many Americans, are unlikely to address the fundamental issues plaguing the economy. Hiring has stagnated, unemployment is on the rise, wage growth is falling, inflation remains stubbornly high, and lower-income Americans are living paycheck to paycheck. That’s why Trump’s economic message – that the economy is booming and deserves a “A+++++” grade – has resonated poorly with Americans, many of whom are struggling to make ends meet or who feel like the American Dream has never been further out of reach. Trump’s blame game, which has already begun to resonate with diminishing impact, is nearing a point where convenient targets will be scarce. That indicates Trump will be politically responsible for this economy, potentially at the most challenging moment – as the job market and affordability seem to be in decline. The midterms are approaching, and once more, Americans are casting their votes based on their financial considerations.
