President Donald Trump has called for a drastic cut in the federal funds rate, down to just 1%. This move would boost inflation expectations and send long-term Treasury yields higher, but also signal possible economic trouble. Wall Street analysts doubt this extreme measure will be taken due to potential turmoil.

The White House continues to pressure Federal Reserve Chairman Jerome Powell to lower rates to 1%, despite the current rate sitting at 4.25%-4.50%. Such a significant reduction would be unprecedented and could cause chaos in financial markets and the economy. Experts are skeptical of this extreme proposal.

Economists warn that a 1% rate could shock businesses and consumers, prompting uncertainty and hindering economic growth. Long-term Treasury yields would likely rise, increasing borrowing costs. Such a low rate is typically reserved for economic emergencies, not normal economic cycles.

Despite Trump’s call for a 1% rate, experts caution against such a move, citing potential negative consequences. Businesses may hesitate to invest and expand, fearing an impending crisis. The White House maintains that rates can be raised if inflation spikes after a cut.

Analysts predict that a rate of about 3.5% by the end of 2026 could be more realistic, if inflation remains under control. Critics accuse Powell of mishandling rate adjustments, calling for more timely responses. A drop to 1% is deemed extreme and could lead to high inflation rates.

A significant cut to 1% would initially lower Treasury yields, but inflation indicators could prompt a return to higher rates. Experts warn that maintaining rates at current levels could trigger a recession, while a 1% rate would require a massive increase in the money supply, leading to double-digit inflation.

Infrastructure Capital Advisors CEO criticizes the idea of slashing rates to 1%, calling it “ridiculous” and warning of severe economic consequences. A rate around 2.75%-3% is seen as more stable, while the current rate may lead to a recession. Experts caution against extreme measures in monetary policy.

Read more at Yahoo Finance: What if the Fed cut rates to just 1% like Trump wants? An analyst says it’s ‘ludicrous’ and may scare businesses