How the Fight Between Donald Trump and Jerome Powell Impacts You

The fight between Donald Trump and Jerome Powell endangers the independence of the Federal Reserve. The Federal Reserve conducts apolitical monetary policy to support the American economy.

Federal Reserve Chair Jerome Powell has been in headlines in recent weeks, leading many Americans to wonder why someone in an apolitical position has become a target of the president of the United States.  Most Americans go decades without knowing the name of the Federal Reserve Chair, so why is he drawing presidential consternation at this moment?

To understand why, dive into the job description.  The Federal Reserve Chair sets monetary policy for the central bank.  In its own words, the Federal Reserve “conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy.”  In simple terms, the Federal Reserve makes sure that the price of necessities does not oscillate week-to-week, making it impossible for Americans to determine how to make a living.  It also does this in a way that allows Americans opportunities to earn the money they need, generally through employment.

The key tool the Federal Reserve has to impact prices and employment is interest rates.  The Federal Reserve serves as the central lender for banking institutions across the country.  Put another way, it is the bank for the banks, the place where banks can borrow money.  By setting the interest rate for banks looking to borrow from it, the Federal Reserve influences the cost of borrowing across the entire country.

Raising or lower interest rates is not inherently good or bad, but these actions impact the economy.  Raising interest rates means borrowing money is more expensive because banks borrowing money from the Federal Reserve pass along those higher interest rates to their customers.  Customers then have two options.  They either pay a higher interest rate to borrow money, or they choose not to borrow.

While desperate borrowers will pay any interest rate because they need the money, an entrepreneur considering a large new project may pause before agreeing to a loan with a high interest rate.  Higher interest rates may be the difference between the same project being a guaranteed profit and a risky venture.  As interest rates rise, more entrepreneurs hit their level of risk tolerance for their budgets, and some choose not to borrow money.

Lowering interest rates does the opposite.  It makes money less expensive to borrow, allowing more entrepreneurs to afford their next project.  Lower interest rates also make obtaining a mortgage more affordable because the cost of borrowing money for a home purchase is lower.

But this does not mean lower interest rates are inherently better.  Lower interest rates also mean you gain less interest in your high-yield savings account.  If you are the lender rather than the borrower, it means less return on your investment when you loan that money out.

The simplest way to look at why interest rates matter is that low interest rates encourage investors with choices to borrow money while high interest rates encourage those same investors to save their money.  If I have $100,000 to invest how I see fit, I may put it in a high-yield savings account and watch it grow when the interest rate is up at 5%.  Gains of 5% with no risk are great.  However, if I am only receiving 0.5% returns in a high-yield savings account but can borrow money for an investment property at 2%, maybe I should use that $100,000 as a down payment on a rental property, borrowing $400,000 as a mortgage and exploring a new business venture.

Why Does Trump Care?

Americans are worried about the economy, and this worry has caused many to refrain from risky business ventures.  Donald Trump wants to change that.  He wants Americans to borrow money rather than let it sit in safe accounts where it slowly grows over time.

Why?  Continuing the rental property example, if I invest in a rental property, there would be additional costs.  If it needed work, I would employ contractors and electricians.  If it was all set but I made it a short-term rental, I might need a property manager and cleaning crew between stays.

All of those expenses on the investor are jobs for regular people.  When entrepreneurs borrow for their business ventures, they employ people who then have jobs that make them more economically secure.  The impact of one rental property may be small, but the impact of thousands of additional rental properties creates a lot of new jobs!  Scale that for bigger business ventures, and a lower interest rate has a huge impact on the economy.

Trump wants investors to spend money rather than saving it so more Americans have jobs.  He then wants those people with jobs to have more disposable income to spend at other businesses, enriching more people and creating more jobs.  He ideally wants this before the midterm elections because many Americans vote based on their perceptions of the economy.

Why Doesn’t Jerome Powell Want That?

All of that sounds great until you realize that the outcome of these actions is even more price volatility.  An expansionary monetary policy, meaning lowering interest rates, can help a stagnant economy by encouraging people to spend money.  On the other hand, raising interest rates helps correct inflation.  In times of high inflation, the Federal Reserve raises interest rates to discourage spending because goods and services are overpriced.  

If I am a consumer who contributes $100 a month to a high-yield savings account bucket for buying clothing and I see a shirt that costs $25 when I value it at $20, I keep that $25 in my high-yield savings account to gain interest.  A higher interest rate increases the opportunity cost of purchasing goods priced too high, and some consumers then decide not to make a purchase.  Over time, consumers choosing not to spend on certain goods and services will regulate inflation by bringing prices back where they belong.

The United States is currently experiencing inflation.  If you have complained about the rapidly increasing prices of groceries, gas, basic goods, cars, housing, and more, that is inflation.  Every complaint about inflation is a vote for Federal Reserve Chair Jerome Powell’s current fiscal policy.  He does not want to dramatically lower interest rates like Donald Trump does because he is still concerned with inflation.  But Powell still lowered interest rates slightly in late 2025, acknowledging that inflation is coming under control but not completely alleviated.

Why Would Significantly Lower Interest Rates Be So Bad?

Other than the inherent danger of politicizing the Federal Reserve and your high-yield savings account growing at a glacial pace, lower interest rates may sound like a positive tradeoff.  We all know someone recently laid off from a job and struggling to find a new one, and more jobs would be great.  But the negatives do not stop at the dismantling of checks and balances in the American democratic republic or the diminutive interest gained in your high-yield savings account.

Lower interest rates means less incentive for banks to lend.  While a 2.75% mortgage rate might sound wonderful, it would be incredibly difficult to actually obtain.  Banks tighten their belts, and make potential borrowers jump through many more hoops, because they have less margin for error when taking on risk.  Credit card lending similarly dries up.  

Additionally, lowering interest rates dramatically before verifying that inflation has been controlled can lead to additional inflation and long-term price instability.  By suddenly encouraging people to buy again, rather than save, businesses become emboldened to raise prices even more for consumers with more cashflow.  Over time, this can lead to consumer debt among those that continue buying as prices increase, the high-yield savings account saver being priced out of markets as their savings fails to keep pace with inflation, and an increase in wealth disparity.

Left unchecked, we become Zimbabwe printing trillion-dollar bills and wondering how much the price of a coffee will rise from one day to the next.  Not week-to-week or month-to-month, but literally Tuesday to Wednesday.  This obviously stunts any kind of financial planning, makes it impossible to live off of retirement earnings or Social Security benefits, and creates mass economic panic.

To avoid that nightmare scenario, trust Federal Reserve Chair Jerome Powell to make small changes over time to balance the need to control inflation, maximize the number of jobs, and help the economy grow at a reasonable pace.  Controlled economic growth helps all of us.  Avoiding prudent economic policy only helps a president experiencing a public relations crisis.