Reuters today posted yet another call by U.S. President Donald Trump for Jerome Powell, chairman of the Federal Open Market Committee to lower the target range for the federal funds rate. The target range for the federal funds rate is currently between 4.25% and 4.50%. The federal funds rate is a weighted average of the interest rate at which banks lend each other a part of the reserves that they hold either in their own vaults or in a vault at their district federal reserve bank.
Mr. Trump’s call for lower rates came hours before the Federal Open Market Committee is to issue its decision on the fed funds target range. Mr. Trump’s call for lower rates is a part of his trade agenda which requires a weaker currency that attracts foreign consumption of U.S. manufactured goods as well as investment in U.S. companies on American soil.
Mr. Powell has repeatedly pointed out that addressing currency valuation is not on the Federal Reserve’s monetary policy radar.
Pursuant to 12 USC section 225(a), “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long-run growth of the monetary and credit aggregates commensurate with the economy’s long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
Monetary aggregates are the measures of the nation’s money stock. The Federal Reserve measures money aggregates and presents them in an end-of-the month currency stock series. In the United States, money aggregates are classified as M0, M1, M2, and M3.
M0 is the sum of the dollar amounts of currency in circulation. M1 is M0 plus non-bank travelers’ checks and checkable deposits. M2 includes M1 plus money market shares, overnight repurchase agreements, and savings deposits.
M3, which is no longer tracked by the Federal Reserve, consists of deposits over $100,000, balances in money market funds, and euro dollar deposits plus M2.
Credit aggregates include central bank credit and central government credit. Central bank credit would include loans extended by a federal reserve bank to depository or non-financial institutions. Central government credit would be loans made by say the Treasury to other non-financial institutions.
While moderate, long-term interest rates are part of the Federal Reserve’s “dual mandate”, central banks look at exchange rates as just another gauge for inflation. Currency valuation is in the wheelhouse of the Congress (see Article I, Section VIII of the U.S. Constitution) and the U.S. Department of the Treasury. Mr. Powell’s fallback rebuttal based on statute will continue to be on the Fed’s focus on managing the U.S. monetary and credit aggregates otherwise known as the money supply.
Unless Mr. Trump can conjure up a sound reason for currency intervention via the U.S. Treasury, I don’t see Mr. Trump’s desires to have the Federal Reserve impact the currency being fulfilled anytime soon.
Alton Drew
30 July 2025
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