Mr. Trump's attacks on the Fed and their consequences

Three additional interest rate cuts in 2026

We had previously forecast three interest rate cuts by the Federal Reserve by the first quarter of next year – which would reduce the key rate from the current 4.5% (upper limit of the key interest rate range) to 3.75%. We now expect three further interest rate cuts to 3.0% in the coming year.

Trump's influence on the Fed is growing more than expected

We always assumed that Donald Trump would push the Federal Reserve toward a looser monetary policy and that the Fed would partially yield to the pressure. But Trump's pressure has now reached a new level:

• Shortly after taking office, Donald Trump accused Fed Chairman Jerome Powell of being “always late and wrong.” He said Powell's departure could not come soon enough and threatened to fire him. After negative market reactions, he withdrew this threat. But he quickly resumed his smear campaign. Most recently, he even called Powell a “knucklehead” and a “fool.”
• Trump accuses the Fed of exceeding the budget by $700 million for the supposedly “ostentatious” renovation of its buildings in Washington. This accusation represents a new level of hostility. Although members of the Fed's board of governors cannot be dismissed for differences of opinion on monetary policy, they can be dismissed “for cause.” Such a reason could be the alleged waste of public funds.
• Among the frequently mentioned successors to Jerome Powell, who is due to step down next May as Board chair, are two men who are loyal to Trump. Kevin Hassett, director of the US President's National Economic Council, has participated in various attacks on Jerome Powell. The same applies to Kevin Warsh, who was Fed governor from 2006 to 2011 and has long been in the Trump camp.

All in all, the likelihood that Powell's successor will pursue a more expansionary monetary policy in line with Trump's wishes has increased in recent weeks. This is the main reason why we now expect three more interest rate cuts in 2026 than previously anticipated.

For full text see attached PDF-Version.