What if the Fed cut rates to just 1% like Trump wants? An analyst says it’s ‘ludicrous’ and may scare businesses
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"As a big business owner looking at rates at 1% or 2%, I'm definitely saying, 'what do you know that I don't?'"
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real estate
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July 19, 2025
05:15 PM
Fortune
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It's worth noting that Economy·Federal ReserveWhat if the Fed cut rates to just 1% Trump wants (an important development)
An analyst says it’s ‘ludicrous’ and may scare esBy Jason MaBy Jason MaWeekend EditorJason MaWeekend EditorJason Ma is the weekend editor at Fortune, where he covers, the economy, finance, and housing, in today's market environment
SEE FULL BIO The Federal Reserve building in Washington, DC
In contrast, Santiago—Getty ImagesThe federal funds rate currently sits at 4. 50%, but President Donald Trump has said it should go down to just 1%
A rate that low would boost inflation expectations and send long-term Treasury yields higher, but also send a signal that something extreme may be in the economy, according to a Wall Street analyst, in today's market environment
Meanwhile, Amid the White House’s unrelenting pressure campaign on Federal Reserve Chairman Jerome Powell, President Donald Trump has not only demanded that the central bank to cut rates but to lower them all the way to 1%
However, The federal funds rate currently sits at 4, in today's financial world. 50%, meaning a reduction of that magnitude would require a drastic move that goes well beyond the Fed’s typical increments of a quarter point at a time (though it last cut by half a point in September)
Additionally, This leads to the conclusion that ’s so extreme, Wall Street doubts it would actually happen, as it would trigger immense turmoil in financial and the economy. “I don’t think this needs to be taken too seriously, because it’s so ludicrous, and in some ways cutting rates too low, too prematurely, too early would do exactly what you don’t want to happen,” Jeffrey Roach, chief economist at LPL Financial, told Fortune, given current economic conditions
Additionally, That’s because long-term Treasury yields would spike as bond investors price in higher expectations for inflation that a 1% rate would stoke, raising borrowing costs for consumers and es
In addition, a rate that low is usually associated with an economic emergency the COVID-19 pandemic or the Great Financial Crisis (which is quite significant), in today's market environment
So 1% may actually shock es into wondering if another calamity is lurking around the corner, mpting them to hunker down and wait rather than expand, Roach warned (noteworthy indeed)
Additionally, “As a big owner looking at rates at 1% or 2%, I’m definitely saying, ‘what do you know that I don’t. '” he said (something worth watching). “Hence I’m not going to respond by increasing capex and increasing operations to the company, considering recent developments
However, I’m going to be even more concerned with what that signals. ” A White House spokesman pointed to Trump’s previous s that the Fed always can and should raise rates again if inflation spikes after cutting them (remarkable data)
For his part, Roach thinks there’s bably room for rates to eventually drop to 3, in this volatile climate. 5% by the end of 2026, if inflation stays under control, and said Powell didn’t raise rates soon enough when inflation was surged after the pandemic (quite telling)
Similarly, Infrastructure Capital Advisors CEO Jay Hatfield accused Powell of gross incompetence by being too late to raise rates but also blasted the idea of the Fed slashing rates to 1%
Moreover, Treasury yields would initially drop in the immediate aftermath of a cut to 1%
But once inflation indicators start pointing higher, the fed funds rate would go back up to 4% to shrink the money supply, sending the 10-year yield to 5% (this bears monitoring), given current economic conditions
After a mini-recession or a big pullback, the yield would end up around 3 (noteworthy indeed), in today's market environment
At the same time, “So it’s horrible economic policy to do that,” he told Fortune, given current economic conditions
A fed funds rate around 2 (an important development)
Additionally, 75%-3% wouldn’t stoke inflation or send the economy into a downturn, but keeping rates where they are now would trigger a recession, Hatfield added (this bears monitoring)
A 1% rate, however, would require a massive expansion in the money supply, in light of current trends. “It’s absolutely a ridiculous idea and will cause double-digit inflation,” he warned, in this volatile climate
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