Given the ongoing disagreements between Donald Trump and Federal Reserve Chair Jerome Powell over interest rate policy, I find myself at odds with both positions. Trump advocates for lowering the federal funds rate and the discount rate, while Powell favors maintaining current levels. I, however, believe neither approach is sufficient. Instead, I argue that we should increase the federal funds rate. Here's why:
The Federal Reserve’s current federal funds rate target of 4.25%–4.5% has provided moderate tightening, but to decisively curb inflation which Donald Trump campaigned on and reinforce economic stability, a more assertive stance is warranted. Elevating the rate to 6% would serve as a potent tool to suppress persistent inflationary pressures, reinforce the strength of the U.S. dollar, and offer substantial benefits to savers.
Historically, higher interest rates have proven effective in taming inflation by curbing excessive borrowing and spending. A 6% rate would further discourage speculative activity and reduce consumer demand enough to ease upward pressure on prices without entirely stalling economic growth.
A higher interest rate environment typically bolsters the U.S. dollar’s value relative to other currencies. A stronger dollar enhances purchasing power for American consumers and businesses, lowering the cost of imported goods and contributing to long-term price stability.
Crucially, a 6% rate would reward responsible savers. High-yield savings accounts, money market funds, and certificates of deposit (CDs) would offer significantly improved returns, encouraging households to save more. This shift would support long-term financial security for individuals while providing a stable capital base for financial institutions.
In sum, increasing the federal funds rate to 6% would strike a strategic balance between controlling inflation, strengthening the dollar, and rewarding prudent financial behavior—an essential step toward lasting economic resilience.