The Indicator from Planet Money Why an aggressive rate cut could backfire on Trump
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Sep 16, 2025 A modest interest rate cut is on the horizon, but President Trump advocates for a drastic 3-percentage point reduction, which could have unintended consequences. The Federal Reserve prefers a cautious approach, likened to an elephant tiptoeing, highlighting the complexities in their decision-making. The potential fallout from aggressive cuts could lead to rising inflation and increased borrowing costs. Furthermore, the independence of the Federal Reserve is crucial for economic stability, as political interference could jeopardize trust in U.S. debt.
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Scale Of A 3-Point Cut
- A 3 percentage-point Fed cut would be a massive, atypical move compared with usual incremental quarter- or half-point steps.
- Such a dramatic cut would move the federal funds rate from ~4.5% to ~1.5% and is far outside normal Fed behavior.
The Tiptoeing Elephant Metaphor
- Paddy compares the Fed to a tiptoeing elephant, emphasizing its cautious, incremental approach to rate changes.
- He contrasts that with President Trump's 'rhino' demand for a large, sudden cut to illustrate the mismatch in styles.
Short Rates vs. Long-Term Markets
- The Fed sets the overnight base rate, which strongly influences short-term yields but not directly long-term rates like 30-year mortgages.
- Long-term rates are driven by market forces and expectations about inflation and growth, not just the Fed's policy rate.