President Donald Trump had a contentious relationship with the Federal Reserve in his first term, and he didn’t wait long before picking his feud back up after his second inauguration. On Thursday, Trump told an assemblage of banking leaders, policy officials and global leaders that he would force interest rates down.

“I’ll demand that interest rates drop immediately,” Trump reportedly said in a video appearance at the World Economic Forum in Davos, Switzerland.

Can he really do that?

The short answer is no. The president of the U.S. does not set interest rates. Rates are set by a committee of officials at the Federal Reserve. The Fed is an independent entity on purpose — it operates on the understanding that investors and businesses draw confidence from an apolitical central bank.

Without this independence, “monetary policy will be subject to political swings,” says Gregory Daco, chief economist at EY. That’s bad news because a Fed governed by political whims rather than by a longstanding commitment to keeping prices stable and the labor market healthy could steer the economy in the wrong direction, he says.

Daco adds that while it’s understandable that a president would want lower interest rates in order to rev up economic activity, history shows that when rates are too low, the economic outcome can be as damaging as when rates are too high.

“It’s not in the interest of the economy and the well-being of Americans. That can lead to an environment where monetary policy is excessively easy, which actually fuels inflation,” he says.

What can and can’t the president do to interest rates?

In addition to his interest rate “demand” this week at Davos, Trump has also pushed policymakers to lower rates. He spent much of his first term excoriating and threatening to fire Jerome Powell, who he appointed as the chairman of the Federal Reserve Board of Governors in 2018. But he can’t actually do that, either.

The president isn’t allowed to fire a Fed chief without cause — an important safeguard of the central bank’s independence. For his part, Powell has frequently reiterated his commitment to serving out his term as chair, which ends in 2026.

After the election, Trump said he wouldn’t try to remove Powell before the chairman’s term ends, but the recent bellicose tone he has struck on rates has political and economic experts alike wondering if the president will stick to his pledge.

If Trump tries inserting his wishes into policymakers’ data-based deliberations, “it could be unsettling to markets,” according to former Fed official Esther George. George told Yahoo Finance last fall that this sort of political bluster “will require the Fed to stand up to pressures that it may receive, whether they’re simply rhetoric or they are more direct threats.”

What’s the worst that could happen?

Daco notes that while the rate of inflation has slowed considerably, households are still shouldering the burden of prices that have risen by more than 20% since 2019. “One of the two key restraints on economic activity today is the fact that interest rates remain elevated,” he says.

But while ordinary Americans might be weary of seeing their credit card APRs and loan rates continue to climb, crossing your fingers for political intervention could backfire. Lower rates could trigger an acceleration in the rate of inflation, which could prompt the Fed to reverse course and actually raise rates instead.

Both the president and Congress do have the power to indirectly influence rates, however. The extent to which executive orders and legislation impact inflation could prompt a policy response from the Fed.

Many economists agree that the Trump administration’s policy priorities are more likely to lead to higher, not lower, interest rates. In June, 16 Nobel Prize-winning economists signed an open letter that said, “Many Americans are concerned about inflation, which has come down remarkably fast. There is rightly a worry that Donald Trump will reignite this inflation.”

Now that the public knows more details about Trump’s plans and priorities, that outlook hasn’t changed. “The policy mix in general that’s been proposed by the administration will be inflationary,” Daco says.

Trump’s push to implement tariffs and his efforts to halt immigration and deport millions of immigrants currently in the labor force are both inflationary. The brewing fight in Congress over extending or adding to tax cuts could also drive inflation higher, he adds.

Wall Street has almost entirely written off the prospect of a rate cut at the Fed’s next meeting at the end of this month, expecting officials to keep the benchmark fed funds rate at a range of 4.25% to 4.5%. Currently, markets expect just one or two quarter-percentage-point cuts in 2025. And some market observers have suggested that the Fed might not lower rates at all in 2025.

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