What you might want to know about the Federal Reserve And interest rates. Low interest rates may be good in many ways, but too much of a good thing maybe not.
This article appears on HumbleDollar.com
Adam M. Grossman | Dec 13, 2025
EARLIER THIS WEEK, the Federal Reserve’s Open Market Committee met and decided to lower interest rates by a quarter-point. This immediately sparked a war of words.
At a press conference, Fed chair Jerome Powell took a swipe at the White House, blaming the president’s new tariff policies for an uptick in inflation.
President Trump wasted no time in responding. All year, he has been lobbying Fed officials to move rates lower. And while they have been taking steps in that direction, the pace has been incremental, frustrating the president. Powell is “a stiff,” Trump said on Wednesday. “Our rate should be much lower.”
This is just the latest chapter in a long-running feud. Trump first appointed Powell to the Fed during his first term but grew frustrated with him after a short time. As far back as 2019, Trump was chiding Powell online, calling him a “bonehead” at one point.
In 2022, the Biden administration reappointed Powell for a second term, with the result that the Trump-Powell feud continues today.
Why would the White House prefer to see rates lowered? In short, lower rates make life more affordable for everyone. They make mortgages cheaper, along with car loans and credit cards. Lower rates also make it less expensive for businesses to borrow. Thus, from a political perspective, lower rates are almost always popular.
The challenge for the president, though, is that he has only indirect control over the Federal Reserve. The Fed is technically an independent entity and not part of the executive branch, though the president does have the authority to appoint members to the Federal Open Market Committee (FOMC), which makes rate-setting decisions. The president also appoints the chair of that committee.
But as with all appointees, there’s never a guarantee which way committee members will go once they’ve been appointed. And their terms are staggered, meaning the president can’t easily make changes. Earlier this year, in fact, the president explored the idea of firing Powell but found that his hands were tied. That helps explain the ongoing war of words.
In addition to making purchases cheaper for consumers, lower interest rates are also positive for the stock market. Why? According to finance theory, the value of a company should equal the sum of all of its future profits. But future profits have to be adjusted for the time value of money—the idea that a dollar next year is worth less than a dollar today. When interest rates are lower, future profits are discounted less. All things being equal, that translates to higher stock prices. That’s another reason the White House would like to see the Fed take quicker action.
If lower rates carry so many benefits, why isn’t the Fed moving more quickly? That brings us to what’s known as the “dual mandate.” In its role setting rates, the Fed is responsible, on the one hand, for maintaining full employment. Lower rates help in that regard.
At the same time, the other side of the Fed’s dual mandate requires it to manage inflation. Economists talk about the risk of the economy “overheating,” and that’s Powell’s key concern. Especially after seeing prices spike nearly 10% in the wake of the pandemic, the Fed wants to avoid a repeat of that unpleasant experience. Higher rates help keep inflation in check.
The Fed’s job, in other words, is to strike a delicate balance between rates that are too high and too low. This ends up being a tricky task, and for that reason, presidents have often tangled with their counterparts at the Fed.
In the 1830s, prior to the creation of the Federal Reserve, there was an entity known as the Second Bank of the United States. It was the closest thing to a central bank at the time. But President Andrew Jackson had bitter conflict with the leaders of the Second Bank. He ultimately revoked its charter and had it shut down. That’s why the United States lacked a central bank for decades, until the Fed was created. But almost as soon as the Fed was created in 1913, conflict with successive White Houses resumed.
In the 1950s, the Fed, under chair William McChesney Martin, was moving more slowly than President Truman had wanted, leading him to brand Fed officials “a bunch of cowards.”
Martin stood his ground though. In a speech that same year, he explained that the Fed’s role was akin to that of a chaperone who is obligated to “take away the punch bowl” before things got out of hand. Martin, in fact, is credited with coining that term.
From Truman’s point of view, though, lower rates would have served a larger national purpose. In the wake of World War II, the government was saddled with a historically high level of debt. Truman’s hope was that if the Fed lowered borrowing costs, it would help the government work down its debt load more quickly. It was for that reason that Truman also excoriated Martin as a “traitor.”
This tension very much mirrors the situation today. Since Covid, the federal government has been running dramatically higher deficits. This year, the federal government will bring in about $5 trillion but spend $7 trillion. Each year that deficits like this persist cause the government’s total debt load to grow. That, in turn, causes interest expenses to consume more and more of the budget. This year, interest will top $1 trillion, equal to one-seventh of all spending. Just as in Truman’s day, this is another reason today’s White House would like to see rates lower.
Lyndon Johnson also butted heads with Fed chair Martin, at one point summoning him to his Texas ranch to press his case. Martin had wanted to keep rates higher because he feared that spending for Johnson’s Great Society would be inflationary. A frustrated Johnson reportedly shoved Martin against a wall and bellowed at him. Johnson also asked his attorney general if he could fire Martin but was advised that he couldn’t legitimately remove him.
The debate about the Fed goes beyond the question of higher rates vs. lower rates. More fundamentally, the debate today is about the Fed’s overall role. In recent decades, the Fed has taken on the role of serving as lender of last resort during crises. In 2008, it helped stabilize banks by giving them cash in exchange for wobbly assets on their balance sheets.
During Covid, the Fed dramatically expanded on its 2008 playbook. You may recall, for example, the stimulus checks and other payments the government issued. Those programs cost trillions. They were financed by the Federal Reserve, which has the unique ability to create dollars essentially out of thin air. The Fed has also stepped in to help various other crises over the years.
In light of this history, most people today see the Fed’s expanded role as a good thing. But not everyone agrees. Treasury secretary Scott Bessent recently published an opinion piece in which he criticized the Fed for taking its lender-of-last-resort playbook too far, flooding the economy with too much easy money for too many years. In Bessent’s view, this has contributed to widening wealth inequality. “The Fed must change course,” he wrote in September, and he is working to do what he can from the outside.
Where does all this leave individual investors? Recently, I outlined ways an individual investor could build a portfolio of bonds to manage market risk. As this debate over the Fed reminds us, another reason to diversify is to protect against potential public policy changes that could affect the bond market.
As investor and author Howard Marks often says, “we can’t predict, but we can prepare.”
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
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