Chairman Powell, cut the interest rate

OPINION:

Chairman Powell, the time has come to cut interest rates. Middle-class Americans need relief.

Since his inauguration, President Trump has focused on improving the lives of middle-class Americans. They are the ones who elected him and, contrary to liberal criticism, they are the ones who will benefit the most from his efforts.

Those efforts include Mr. Trump’s persistent calls for an interest rate cut. To date, Federal Reserve Chair Jerome Powell has resisted these calls. Based on his recent comments in Jackson Hole, Wyoming, he is beginning to see the necessity of a rate cut. That’s welcome news, as hardworking Americans need relief from mortgage and credit card rates that make it hard for them to afford necessities.

Mr. Powell must now follow through by cutting rates this month, and likely again later this year, so the move can improve the economy and allow Mr. Trump to help American families.

A little context is important. For almost two years leading up to last year’s presidential election, American consumers have been under severe economic pressure to keep up with the cost-of-living increases thrust upon them by the previous administration’s policies. Those policies and Mr. Powell’s delay in raising rates in 2021 and 2022 led to runaway inflation.

The bottom 65% of Americans have been struggling to make ends meet. That is why credit card balances ballooned from $750 billion in mid-2021 to more than $1.2 trillion just before Election Day, a 60% increase. That is also why subprime auto delinquencies rose by November to their highest level ever, topping the highs of 1996 and 2008.

Treasury Secretary Scott Bessent said the highest number of middle-class Americans in history had to go to food banks to feed their families in 2024. Further, the manufacturing sector has been in recession, which has piled on even more misery for the American worker. The Institute for Supply Management Manufacturing Purchasing Managers’ Index had been in contraction territory for 22 of the 23 months leading up to November.

The voters gave the president and Congress a clear mandate on Election Day: Do whatever you can to bring down the cost of living.

Answering that call, Mr. Trump has pulled many levers to improve the troubled economy he inherited. Since his election, inflation has dropped, the stock market is up nearly 10%, manufacturing investment and construction jobs are up and the overall unemployment rate remains near historic lows. What’s more, oil prices are down to less than $65 per barrel from almost $90 a barrel in 2024. This helps lower the prices of gasoline and groceries because the cost of transportation and fertilizer affect food prices.

The enactment of the One Big Beautiful Bill Act prevented a major tax increase for American consumers and businesses. It is estimated that had that legislation not been passed, the average family of four would have had a $2,500 increase in their tax bill. The legislation also gave real tax relief to Americans who work for tips and overtime, Americans depending on Social Security and families with children.

Finally, the administration has used permitting changes and deregulation to reduce pressure on housing and rental prices, a major part of Americans’ high living costs.

Despite this good news, consumer confidence remains low. Families worry about the mounting debt accumulated during the Biden years. They are concerned about the underlying interest rate held by the Federal Reserve, which boosts the cost of money on everything they buy on credit, including groceries, cars and homes.

Therefore, the next step is to bring down interest rates. A rate cut will help to lower the debt burden consumers have taken on in credit cards and other revolving credit facilities, and it will benefit small businesses and manufacturers, spurring investment and job creation.

Critics will charge that Mr. Trump’s tariffs will trigger high inflation, burdening American consumers. Although that’s a possibility, the increase in inflation is likely to be limited. Much of the cost of the tariffs may be borne by the exporting company, country or intermediary firms, and thus will not be completely passed on to consumers.

Even if the tariffs are inflationary, they will likely be a “one-time hit,” not a recurring pressure on inflation. The goal of tariff income is to increase the revenue of the Treasury, which would allow the government to reduce the deficit or further reduce income taxes on the middle class. Since the tariffs were announced on April 2, we haven’t experienced a significant uptick in inflation, yet we had a federal budget surplus in April and June.

The European Central Bank has cut rates. The Bank of England has cut rates. It’s time for the U.S. to start cutting rates. Respectfully, Mr. Chairman, you were too slow to raise rates back in 2021/2022, and the American middle class paid the price. Don’t make the same mistake again by being too slow to bring them down.

Americans have suffered enough.

• Paul D. Horvath is the founder and CEO of Orchard Global, an alternative asset management firm. He began his career at the Federal Reserve Bank of New York.