Will the New Fed Chair Cut Rates as Much as Trump Expects? — Crossroads Economy, Part 3 Ch. 11

Rate Cuts: Wanting Them Isn’t Enough

Trump’s demand is simple: “Cut rates.” But it’s structurally difficult for a new Fed chair to cut rates as much as Trump expects.

Three Barriers to Rate Cuts

Barrier 1: The risk of reigniting inflation If tariff-driven cost increases are already stoking inflation, cutting rates on top of that risks reigniting it further. The Fed cut rates too quickly in the 1970s and brought stagflation on itself — a cautionary precedent.

Barrier 2: An accelerating weak dollar Sharp rate cuts drive the dollar lower. A weaker dollar helps exports, but it also raises imported inflation and drives away foreign Treasury investors.

Barrier 3: The Treasury yield paradox Even if the Fed cuts short-term rates, if the market sells long-term Treasuries out of inflation concerns, long-term yields rise anyway. Mortgage rates and corporate loan rates track long-term Treasuries, which dilutes the effect of the Fed’s rate cuts.

A Realistic Outlook

Gradual cuts are possible, but the sharp cuts Trump wants are unlikely. The market may end up digesting this gap between expectation and reality as disappointment.

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The Crossroads Economy series analyzes the structural turning points of the global economy across 18 chapters.

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A Note on This Series

This series is provided for informational and educational purposes only and does not constitute investment advice. Figures, policies, and market conditions referenced may change over time. Please consult a licensed financial advisor before making any investment decisions.

(Reviewed: June 2026)