Opinion: Trump may force the Federal Reserve to lower interest rates through fiscal tightening

According to Jinshi News, Nir Kaissar, the head of asset management company Unison Advisors, believes that US President Trump may have finally found a way to force the Federal Reserve to lower interest rates: fiscal austerity.

Nir Kaissar stated that in recent years, the influence of fiscal policy has been at least equivalent to the historic measures of the Federal Reserve. Now, fiscal and monetary policies may be about to swap roles. Treasury Secretary Scott Bessent said that the government hopes to reduce deficits to 3% of GDP. This would require Trump's Department of Government Efficiency (DOGE) to cut $1 trillion in spending. It is not yet clear how much this goal can be achieved, but just the threat of cutting spending might already be suppressing market sentiment and hindering economic development.

By reducing expenditure, Trump could potentially force a relaxation in monetary policy in support of fiscal tightening. Whether or not Trump's spending cuts lead to an economic slowdown is almost irrelevant. As long as these cuts (or threats thereof) coincide with an economic slowdown, it is likely that The Fed will take action.