US President Donald Trump has pushed the Federal Reserve to lower interest rates and urged global central banks to follow suit while speaking at the 2025 World Economic Forum on Thursday in Davos, Switzerland.
- •This comes months after Jerome Powell, Fed Governor, emphasized on the importance of Fed’s independence, holding that the Fed does not make politically influenced decisions.
- •While Trump does not have statutory authority over the Fed, he nominates members to the board of governors.
- •The US Fed is expected to deliver a monetary policy decision on Wednesday with analysts betting on a halt on rate cuts until inflation progresses towards the 2% target.
“I will demand that interest rates drop immediately, and likewise, they should be dropping all over the world. Interest rates should follow us all over,” Trump said on Thursday.
The move, the newly inaugurated president said, is part of his administration’s plans to execute “the largest deregulation campaign in history”, which includes slashing corporate taxes and seeking ‘fairer’ trade dynamics with other countries.
Jerome Powell was elevated to Fed chair by Trump in 2018 to succeed Janet Yellen and was renominated by Biden in 2022. In 2024, the Fed cut rates three times, by a full percentage point in total, with the benchmark rate now at 4.25 – 4.50%.
Trump had a bumpy relationship with the Fed during his first term, frequently clashing with Powell and threatening to fire him claiming that he was not moving quickly enough to ease monetary policy.
Just a day after Trump’s comments, the Bank of Japan hiked its policy rates to the highest level in 17 years to 0.5% in line with the bank’s plan to gradually increase rates to 1% for economic stability.
The ripple effects of the Fed rate decisions will be felt globally with emerging and frontier markets like Kenya remaining sensitive.
The Central Bank of Kenya (CBK) is likely to follow in Fed’s footsteps albeit cautiously while weighing the economic conditions in the country. The CBK delivered a 1.75% rate cut in 2024 as inflation slowed down to target amid a stable shilling to boost economic activity.
In 2024, Kiprono Kittony, Chairman of the Nairobi Securities Exchange, noted that the US Federal Reserve rate cuts would drive dollar inflows into frontier markets like Kenya. He made these remarks during an event launching bond market reforms at the Nairobi Stock Exchange.
