Trump's Impulsive Push for a Fed Chair Who Will Aggressively Lower Rates Threatens to Re-Ignite Inflation

Trump is signaling he wants a Fed chair who will cut rates much faster - he’s said policy should be “two or three points lower,” which would be a big swing from today’s 4.25% - 4.50% range. That kind of drop might boost equity prices in the short run - and might boost prices more generally, re-accelerating inflation.

This is the core tradeoff the Fed manages: ease policy to juice growth and hiring, or keep policy tight to pin inflation near target. Right now the macro mix is actually close to “goldilocks”: unemployment is roughly 4.1% - 4.3% and the Fed’s preferred inflation gauge (core PCE) is running about 2.8% year-over-year - above 2%, but not far off. Slashing rates aggressively from here could stimulate demand and prices.

A recent real-world cautionary tale: Hungary, led by Orban, a favorite of the MAGA crowd. After a period of very loose policies and energy price interventions, inflation surged above 20% in 2023 (peaking around 25%) before tough medicine and subsequent rate moves brought it down. When you're too greedy for economic stimulus, you will get inflation. (And, of course, Trump's tariffs alone will increase inflation.)

The U.S. has lived this before. Volcker’s disinflation drive in the early 1980s wrung out high inflation - but only with a painful recession. The point of an independent Fed is to resist short-term political incentives and steer toward the low-inflation/low-unemployment mix over time, even when patience is unpopular. With core inflation still a bit sticky and new tariff pressures in the pipeline, racing to 1–2% rates would be a gamble with a high probability of having to reverse course later - expensively.

Bottom line: quick cuts might cause stock prices to pop; they’d also raise the odds we re-learn the hard lesson that bringing inflation back down takes longer, hurts more, and ultimately costs more than avoiding the flare-up in the first place. It's kind of a classically impulsive Trump move though: maximize for now and worry about later ... well, later.