Trump pushes Fed for lower rates, but consumers may be better off with a hike, experts say

Ahead of the Federal Reserve's September monetary policy meeting, President Donald Trump and senior administration officials have urged the central bank not to raise interest rates and, alternatively, even lower its benchmark. Yet experts say consumers may be better served if officials back off. Tighter monetary policy can curb spending and borrowing, helping to cool the economy and ease inflationary pressures that have made groceries and gas persistent pain points for U.S. households.

The central bank has kept rates on hold all year with inflation remaining well above the Fed's 2% target. Fed funds futures were last pricing in a 60% chance of a quarter-point hike at the Sept. 15-16 meeting, according to the CME Group's FedWatch tool. Mark Higgins, senior vice president at Index Fund Advisors, said history shows the most reliable way to restore price stability is to maintain sufficiently restrictive policy until inflation is decisively tamed. Mark Zandi, chief economist at Moody's, warned that a Fed cut would likely cause already-rising long-term rates to rise substantially further.

The implication is that political pressure could undermine the Fed's credibility. Zandi said bond investors expecting a hike to fight above-target inflation would be spooked by a cut, signaling the Fed has lost its independence from the president and meaning even higher inflation in the future. Mark Hamrick, an economic analyst, said if consumers lose faith in the Fed's ability to restore price stability, expectations could become self-reinforcing and make inflation more difficult to control.

What remains unknown is how the Fed will weigh election-year political pressure against inflation risks. The September meeting comes just weeks before the November midterm elections, with polls showing voters broadly dissatisfied with high prices and elevated borrowing costs. The dossier does not indicate whether Chairman Kevin Warsh will respond directly to Trump's Truth Social post or how a potential hike would affect mortgage rates beyond the current 6.89% average.