Could the Fed’s Rate Cut to 1% Backfire? Analyst Calls Trump’s Proposal ‘Ludicrous’—What It Means for Businesses

President Trump has been applying pressure on Federal Reserve Chairman Jerome Powell, urging the central bank to reduce interest rates to 1%. The current federal funds rate stands at 4.25% to 4.50%. Such a drastic cut is highly unusual and raises concerns across Wall Street about potential market instability.

Experts believe dropping rates to this extent could backfire. Jeffrey Roach, chief economist at LPL Financial, cautions that a 1% rate might signal deeper issues in the economy, similar to perspectives during the COVID-19 pandemic or the Great Financial Crisis. He points out that businesses would likely pull back on investments if they sensed trouble ahead. “As a business owner, I’d ask, ‘What do you know that I don’t?’” Roach noted.

Contrary to the idea that lower rates always spur growth, Roach suggests that if inflation remains in check, a target rate of around 3.5% might be more sensible by the end of 2026. He feels the Fed was slow to raise rates when inflation began surging after the pandemic.

Jay Hatfield, CEO of Infrastructure Capital Advisors, was even more critical. He argues that cutting rates to 1% could lead to double-digit inflation. This extreme measure could initially lower Treasury yields but would likely lead to an increase once inflation fears set in. Hatfield believes a sensible rate of around 2.75% to 3% wouldn’t provoke inflation and would avoid a recession, in contrast to the turmoil that a 1% rate would create.

Recent data supports concerns about inflation, with reports indicating that consumer prices have risen considerably over the past year. According to the Bureau of Labor Statistics, inflation climbed by 8.5% year-over-year in March 2022. This underscores the delicate balance the Fed must strike between stimulating the economy and controlling inflation.

Overall, suggestions for drastic rate cuts are met with skepticism. Many experts argue that previously low rates should not be seen as a solution to current economic challenges. A thoughtful approach, they say, rather than extreme measures, is essential for sustainable growth.



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Donald Trump,Federal Reserve,Inflation