As election seasons roll around, candidates often promise to fight for the middle class, pledging to lower the financial burdens that many Americans face, such as high borrowing costs on credit cards, car loans, and mortgages. In their speeches, they act as if controlling interest rates is just another tool in their policy toolbox. The truth, however, is much more nuanced—and quite frankly, a little humorous when you break it down.
One of the most laughable claims during political campaigns is the suggestion that the president can directly lower interest rates. Former President Trump, for example, went as far as to publicly bully members of the Federal Reserve, hinting that he might take control of the central bank if re-elected. While this kind of rhetoric might make for a catchy soundbite, it doesn’t reflect the reality of how the economy—or the control of interest rates—actually works. In fact, if interest rates were directly in the hands of politicians, we could be headed down a very dangerous path.
The Real Story: Interest Rates and Monetary Policy
To understand why the president can’t control interest rates, we need to look at the mechanics behind the scenes. Interest rates are set by the Federal Reserve, which is an independent body tasked with managing the country’s monetary policy. The Fed uses tools like interest rates to either encourage or slow down economic activity, acting like a set of gas and brake pedals for the economy.
When the economy is struggling—unemployment is high, growth is slow, or there’s deflation—the Federal Reserve may decide to lower interest rates. This encourages borrowing and spending, which in turn stimulates economic activity. Lower borrowing costs mean consumers are more likely to buy homes, cars, and goods, and businesses are more likely to invest in expansion. This helps get the economy moving again.
On the flip side, if the economy is overheating—there’s too much spending, inflation is rising, and things are starting to feel a bit too “hot”—the Federal Reserve may raise interest rates. This makes borrowing more expensive, which can slow down consumer and business spending, helping to cool off inflation before it spirals out of control.
While the president may have an influence on the broader economy through fiscal policies (like taxes, government spending, and regulations), the direct control over interest rates is squarely in the hands of the Federal Reserve. This independence is crucial for the stability of the financial system. The idea of a sitting president trying to micromanage interest rates is not just misguided—it’s dangerous.
Why the Independence of the Federal Reserve Matters
The reason it’s so important for the Federal Reserve to remain independent is that monetary policy requires a long-term, data-driven approach. If interest rates were subject to political whims, they could be manipulated for short-term political gain, leading to disastrous consequences. Imagine a president promising lower interest rates just before an election to boost the economy, only for inflation to spiral out of control afterward. This kind of decision-making, driven by political cycles instead of economic fundamentals, could destabilize the entire financial system.
The independence of the Federal Reserve allows it to make tough, non-partisan decisions based on economic data, rather than political pressure. The board of governors at the Fed are experts in economics, and their primary job is to ensure that inflation stays under control and that the economy remains stable. This insulated approach ensures that interest rates are adjusted in ways that benefit the economy in the long run, not just in the immediate run-up to an election.
The Political Rhetoric: More Harm Than Good?
Politicians who claim they can simply lower interest rates if elected often appeal to voters’ frustrations with high borrowing costs. It’s easy to make grand promises about fighting for the middle class and easing financial burdens—but the reality is far more complex. Interest rates are not a quick fix for the challenges facing everyday Americans. And when politicians make these kinds of promises, they risk sowing confusion about how the economy works.
In fact, this kind of rhetoric could have harmful effects. If the public believes that the president can manipulate interest rates, they might not understand the real economic levers at play. They may also begin to view the Federal Reserve as a political tool rather than an independent institution designed to protect the broader economy. This undermines trust in the system, potentially leading to policy decisions that aren’t grounded in sound economic theory or long-term thinking.
The Dangers of Politicizing Monetary Policy
The history of countries that have allowed politicians to take control of their central banks is filled with cautionary tales. Take Argentina, for example. There, the government has routinely pressured the central bank to keep interest rates low in order to stimulate the economy, only to be met with runaway inflation and economic instability. When monetary policy becomes politicized, it’s almost always at the expense of the economy’s long-term health.
In contrast, the Federal Reserve’s ability to act independently from political pressures allows it to make decisions that benefit the economy as a whole, even if those decisions may not be immediately popular. A president may want lower interest rates to fuel consumer spending, but the Fed’s job is to balance that with the broader need for price stability and sustainable economic growth.
Conclusion: Focus on What You Can Control
While the president certainly has a role in shaping economic policy—through fiscal measures, taxes, and regulatory changes—the control of interest rates is not one of them. This is a critical distinction that voters should understand. If you’re tired of hearing politicians claim they can simply lower interest rates to solve economic problems, it’s time to take a step back and recognize the bigger picture.
Monetary policy is a complex, nuanced process that requires careful management by independent experts. The Federal Reserve’s role is essential to ensuring the economy stays on track. And while the president may have a powerful voice in the national conversation about the economy, their ability to control interest rates is, thankfully, nonexistent.
So, the next time a politician promises to lower interest rates, take a moment to remember: It’s not that simple, and it’s certainly not something they can directly control.
