President Trump’s call for a 1% Fed policy rate is raising alarms among economists and investors. While aimed at reducing borrowing costs for a rising federal deficit, such a drastic move—despite strong employment and above-target inflation—could be viewed as politically motivated.
Analysts say it risks undermining the Fed’s credibility, triggering inflation, and rattling bond markets. Historically, 1% rates have only appeared during crisis conditions—not when the economy is growing 2% annually. With Trump’s new fiscal stimulus bill increasing debt supply, keeping market trust in the Fed’s independence will be critical to avoid higher long-term borrowing costs.