The second Trump administration has launched a wave of attacks against various government agencies. Yet, surprisingly, the Federal Reserve, a frequent target during Trump’s first term, has largely been spared. While President Trump has voiced criticisms, they pale in comparison to his past pronouncements.
This relative calm is notable, especially considering Trump’s history of labeling Fed officials as “boneheads” and openly advocating for lower interest rates. While he has recently reiterated his desire for lower rates and criticized the Fed’s handling of inflation and regulatory practices, his tone has been noticeably subdued.
Significantly, Trump endorsed the Fed’s January decision to maintain steady interest rates, a stance expected to continue for the foreseeable future, as “the right thing to do.” He hasn’t revived his previous calls for Chairman Jerome Powell’s dismissal, and even an executive order targeting independent agencies specifically exempted monetary policy. Treasury Secretary Scott Bessent’s focus on reducing long-term, rather than overnight, interest rates further indicates a shift in the administration’s approach, one that Trump seems to endorse.
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This unexpected truce offers reassurance to investors concerned about potential interference in the Fed’s autonomy, a move that could undermine confidence in US markets. It stands in stark contrast to the administration’s disruptive actions across other sectors, both domestically and internationally.
Two primary theories attempt to explain this change. The first suggests that Bessent and other advisors, such as Kevin Hassett, director of the White House National Economic Council, have successfully persuaded Trump to refrain from interfering with the Fed’s interest rate policies, encouraging him instead to concentrate on areas traditionally within the executive branch’s domain.
Bessent, a prominent voice within the administration, argues that a combination of lower spending and taxes, aggressive tariff implementation, and increased energy production will stimulate economic growth, reduce budget deficits, and curb inflation. This, in turn, will naturally lower borrowing costs for businesses and consumers, with the 10-year Treasury yield, not the Fed’s policy rate, serving as the key indicator of success.
As Evercore ISI’s Krishna Guha noted, Bessent’s influence might be steering Trump towards a focus on long-term rates. This shift, at least in the short term, reduces friction between the administration and the Fed, contributing to downward pressure on yields.
