Two pieces of news this week tell the same story. The President wants interest rates pushed down to 1% or lower, and he's again moving to remove a sitting Federal Reserve governor. And on Friday he announced a deal with Vladimir Putin to bring Russian diesel into the market.
Let's start by being fair, because both moves come from a real place. Diesel hit a record $6.52 a gallon last month, more than double a year ago, and the farmers, truckers, and small businesses who run on it are hurting. (Al Jazeera) Higher interest rates make mortgages, car loans, and business loans harder to carry. Wanting relief on both is understandable, and the President is right that these are the things people feel every day.
The problem is that both moves treat the symptom and make the disease worse.
Why "Just Cut Rates to 1%" Backfires
Last month the Federal Reserve raised rates a quarter point, by a unanimous vote, starting only its fourth rate-hiking cycle this century. That vote included Fed Chair Kevin Warsh, the President's own handpicked choice. (The Motley Fool via Yahoo Finance) The Fed didn't do that to spite anyone. It did it because inflation is climbing again, pushed up by a fuel shock and by tariffs that raise what businesses pay for parts and materials.
Forcing rates down to 1% in that environment would be like turning off the smoke alarm because the noise is annoying. Here's the "and then what?":
- Inflation speeds up. Cheap money chasing scarce fuel and goods pushes prices higher, and that's the opposite of relief at the pump or the grocery store.
- Long-term rates go up, not down. The Fed controls short-term rates. Mortgage rates follow the 10-year Treasury, which is set by investors, and it's already around 5.3%. If lenders believe the Fed has been bullied into ignoring inflation, they demand more to lend for 10 or 30 years. Homebuyers could end up paying higher mortgage rates because of a policy sold as making borrowing cheaper.
- The dollar weakens. Foreign investors and central banks hold trillions in U.S. Treasuries because they trust the dollar to hold its value. Artificially low rates with rising inflation are a reason to sell. The dollar's share of global reserves has already slipped from about 64% to about 57% over the past decade. A politicized Fed would accelerate that, and losing the world's favorite currency means paying more to borrow for everything from the national debt to your mortgage.
We've seen this movie. In the early 1970s, President Nixon leaned on Fed Chair Arthur Burns to keep money easy before an election. The country got the election-year boom, and then a decade of stagflation that took double-digit interest rates under Paul Volcker to break. More recently, Turkey's president pressured its central bank to cut rates while inflation was rising; inflation soared past 80% and the lira collapsed.
That's why the effort to remove Fed governors matters too. After the Supreme Court blocked the first attempt to fire Governor Lisa Cook, the White House this week set up a new committee to investigate her, with a hearing set for November 5. (CNN) Whatever you think of the specific allegations, markets read every move like this as a test of whether the Fed can still say no. We've written before about how fragile that independence is. Independence is the only reason a central bank's promises are believed.
Why Russian Diesel Won't Fix the Pump
Under the deal, Russia would supply about 300,000 tons of diesel right away, 500,000 tons in November, then a million more, with another 3 million tons promised later. The headline numbers sound big. The math doesn't:
- It's a drop in the tank. The first shipment works out to roughly 2.25 million barrels. America uses about 3.7 million barrels of diesel every day, and the world uses around 30 million. One veteran oil analyst put it simply: the volumes "don't really move the needle very much." (Al Jazeera)
- Russia may not even have it. Ukrainian strikes have knocked out a large share of Russia's refining capacity. Russia banned its own diesel exports in July and was importing fuel just weeks ago.
- It funds the war we're trying to end. Every dollar for Russian fuel helps finance Putin's war machine in Ukraine. Last month, Congress overwhelmingly passed, and the President signed, the Lindsey O. Graham Sanctioning Russia and Iran Act to target exactly this trade. Now Treasury is issuing a license to allow it. Ukraine's president called it "a weak decision by strong partners."
So the likely result is a few good headlines before the midterms, very little change at the pump, and a stronger Russia. That's not a trade a long-term strategist would make.
The Pattern: Treating Symptoms, Not the Disease
Step back and the pattern is hard to miss. The fuel crisis comes from a war with Iran that started in February without our allies, closed the Strait of Hormuz, and has since spread. Houthi forces are now attacking Saudi tankers and have seized ground overlooking the Red Sea shipping lanes. Inflation comes partly from that, and partly from tariffs. Each new symptom gets a quick fix: a floated diesel export ban, a $5,000 "dividend," and now 1% rates and Russian fuel. None of them touches the cause.
To be fair, this habit isn't unique to this President. In 2022, ahead of that year's midterms, the Biden administration drained the Strategic Petroleum Reserve to its lowest level in decades to bring down gas prices. That was also a short-term fix for a long-term problem. The midterm calendar does this to both parties.
What the Long Game Looks Like
Real relief takes longer, but it lasts:
- Let the Fed do its job. An independent Fed that gets inflation under control is the fastest route to lasting lower rates.
- Shrink the deficit. Washington's borrowing competes with every family and business for credit. Fiscal discipline takes pressure off long-term rates in a way no order to the Fed can.
- End the war with allies, not around them. Fuel prices fall for good when shipping lanes are safe. That takes a coalition, and coalitions take trust built in advance.
- Build energy resilience at home. More refining capacity, a real strategic fuel reserve, and the all-of-the-above energy that keeps us from depending on anyone, least of all Russia.
Treating symptoms feels like action. It wins a news cycle. But a doctor who only hands out painkillers while the infection spreads isn't helping the patient. America deserves leaders who ask "and then what?" before they act, and who are willing to cure the disease even when it takes longer than a news cycle.
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Sources
• President Trump just threw Fed Chair Kevin Warsh under the bus over interest rates — The Motley Fool / Yahoo Finance
• Trump launches new effort to oust Fed Governor Lisa Cook — CNN
• Trump could target three Fed governors — CNBC
• Why is US turning to Russia for diesel despite sanctions? — Al Jazeera
• Trump strikes deal with Putin to get diesel weeks before midterms — The Washington Post
• Trump signed sweeping Russia sanctions last month. Now he's striking a diesel deal — Fortune
• If the Strait of Hormuz is open, why are gas and diesel so expensive? — CNN