Since Donald Trump's presidency began, he has advocated for a significant reduction in interest rates by the Federal Reserve. This initiative raises questions about potential economic consequences.
What Would a 300bp Rate Cut Mean?
Trump's push for a massive 300bp rate reduction is considered bold. The most significant previous cut occurred in March 2020 at just 100bp. By lowering rates, Trump aims to cut the annual $1.2 trillion in national debt servicing costs.
Is a 300bp Rate Cut Realistic?
Achieving a 300bp cut seems very improbable given historical trends. Even during the financial turmoil of 2008 or the COVID-19 crisis, such deep cuts were unseen. Most experts view such a move as an unlikely scenario.
Impact on Economy and Housing Market
The potential rate cut could influence economic metrics. Economic growth could exceed 3.8%, and inflation rates may soar past 5%. Additionally, falling mortgage rates could inflate housing prices by over 25%, which could further drive inflation. One expert noted: “The dollar has started 2025 with its worst first and second quarter since 1973, with a -10.8% decline.”
However, while proposing such ambitious measures, Trump and his team must consider the real-world implications of these decisions to balance short-term political gains with long-term economic stability.
