Trump's 1% Interest Rate Demands Meet Reality Check from Fed and Markets

U.S. President Donald Trump's recent calls for a 1% interest rate are unlikely to come to fruition, despite his repeated demands on the Federal Reserve. The Fed has maintained its current range of 3.75% to 4%, and analysts argue that cutting rates as low as Trump suggests would have catastrophic consequences.

J. Benson Durham, founder of DASM investment research firm, said a three-percentage-point cut by the Fed 'seems cataclysmic'. He believes treasury rates would climb as investors price in higher inflation, countries like Germany could soak up capital by offering slightly more to lenders than the US, and the dollar would plummet.

Trump's demands for ultra-low borrowing costs are also seen as a way to deflect from issues such as high consumer prices ahead of the midterm elections. Analysts say the Fed remains a useful scapegoat for Trump, who heads into the midterms with mortgage rates nearing 7% and prices for staples like ground beef and gasoline rising.

The president's tone has shifted somewhat since his handpicked successor to Jerome Powell, Kevin Warsh, took over as Fed chair. Trump initially criticized Powell, but has been more measured in his comments about Warsh. Some analysts believe this is because of their warmer ties early on in Warsh's term.