President Donald Trump is on a mission to control the Federal Reserve Bank, and in particular, its Open Market Committee that sets the benchmark interest rate.

Trump wants interest rates to plummet to make borrowing cheaper and boost growth. Fed chair Jerome Powell and his allies say not so fast, they need to balance lower rates and economic growth with the Fed’s dual mandate of keeping employment up and inflation down.

To understand why Fed independence matters, BBTW editor Peter Green spoke with former Cleveland Fed vice-president Mark Schweitzer, now an associate professor of economics at Case Western Reserve University.

Peter Green: Why does Trump want to control the Fed? Just to lower interest rates?

Mark Schweitzer: He’s definitely favoring more growth and thinks the economy should be growing more strongly and that the Fed is limiting that. But how he’s thinking about what that would do to inflation or employment, I’m not sure.

Why does Fed independence matter?

Coming out of the 1970s, researchers looked at whether pressures on central banks contributed to inflation. Those researchers found, yes, pressures on central banks do cause inflation. So [they saw] that central bank independence is a good thing for inflation control. And there’s an acceptance that yes, central bank independence contributes to a lower inflation rate.

How do pressures on central banks cause inflation?

This happened with Nixon and the Federal Reserve [in the 1970s]. Generally, the ruling party of whatever country is going to want to see more growth and lower unemployment. They would like to see lower inflation, too, but they’re not going to trade weaker growth or higher unemployment to achieve that. So your independent central bank will make that choice to say, yes, we should focus on inflation, even though we could have stronger growth.

So why is Powell resisting the pressure?

Right now, the Federal Reserve’s looking at a labor market that has been improving and has gotten a little tighter. But in the last few months, there have been a few signs that it’s slowing. And there’s a judgment call about how well the Federal Reserve is doing on the full employment side of its dual mandate. On the other side, the Fed has stated that its goal for inflation is 2% on the consumer price index. On top of not having achieved that, there’s been an upward trend in inflation, and we know that tariffs will probably boost that as well. So there’s a lot for the Federal Reserve to worry about on the inflation side of its mandate. So, it’s a challenging situation to judge the appropriate policy rate. Sudden growth would almost certainly cause higher inflation.

What effect would lowering the Federal funds rate have on real-world interest rates?

The federal funds rate is not a rate that you or I, or even real estate developers, get to borrow at. It’s a rate between banks. Longer-term interest rates are fundamentally determined by the expected inflation rate and whatever interest rate people feel is appropriate for lending at a 10-year, 20-year, or 30-year horizon. It’s a market-set rate. If the Fed said tomorrow that we’re going to make the Fed funds rate zero again, that might lower a credit card rate or two, but maybe not. The world is not a place where the Fed gets to just control rates. That’s not how it works. There are many market rates, and the Fed can influence some of them.

And if that Fed rate cut were as big as Trump is suggesting, by whole percentage points?

If we had an inappropriately lower federal funds rate, investors are going to infer that we are likely to have more inflation in the future, and that’s going to cause upward pressure on long-term interest rates. If we see inflation expectations rise, the Federal Reserve is likely to raise rates again. We’re in an environment where a sharp reduction in interest rates would put inflation expectations at risk.

This interview has been edited and condensed for brevity and clarity.

—Peter S. Green

Watch Big Business This Week on Cheddar—and YouTube!Big Businesses mentioned this week:

$GOOGL ( ▲ 0.41% )  $AAPL ( ▲ 0.38% )  $M ( ▲ 4.09% )  $KHC ( ▲ 0.15% )  $BA ( ▼ 0.34% )  $FLYYQ ( 0.0% )  $PEP ( ▼ 1.12% )  $KDP ( ▲ 0.36% )  $KO ( ▼ 1.19% )  $FOX ( ▲ 0.55% )  $WBD ( ▼ 0.92% )  $CPB ( ▼ 2.48% )  $BBY ( ▲ 2.58% )  $ABTC ( ▼ 20.83% ) 

What do you think of Big Business This Week? Tell us how you really feel in this survey!

The usual suspects

• Google, Apple off the hook: America’s foremost techbuster let both Google $GOOGL and Apple $AAPL off the hook, and the two companies’ share prices soared the next day. Federal judge Amit Mehta turned down the government’s request to break up Google and force it to end $20 billion a year of payments to Apple. Judge Mehta already ruled that Google held an illegal monopoly in search because it paid Apple to make Google the default search engine on all its devices and its Safari browser. Banning the payments would strengthen Google’s hand by giving the company free access to Apple’s huge user base. “For now, Google will be permitted to pay distributors for default placement,” Mehta wrote in an opinion handed down late Tuesday. “There are strong reasons not to jolt the system and to allow market forces to do the work.” Google shares rose nearly 9% on Wednesday morning, while Apple was up 3%. Mehta could have forced Google to sell its Chrome browser, or to make all its search result data available to other browsers, like Microsoft’s Bing. The ruling was met by boos from competitors and consumer advocates. “Google will still be allowed to continue to use its monopoly to hold back competitors, including in AI search. As a result, consumers will continue to suffer,” wrote Gabriel Weinberg, CEO of rival search engine DuckDuckGo. He called on Congress to step in to “swiftly make Google do the thing it fears the most: compete on a level playing field.”
• Macy’s on parade: The perennially also-ran department store may be turning a corner after reporting quarterly sales growth for the first time in three years on Wednesday, sending its shares up more than 20%. Macy’s $M CEO Tony Spring attributed the news to the company cleaning up its stores. But he said he expects shoppers to spend more carefully once tariffs really kick in later this year.
• Kraft Heinz: Food giant Kraft Heinz $KHC is headed for splitsville. Formed in 2015 by Warren Buffett, the combo just didn’t work, and the breakup is gonna be awkward. Kraft’s singles will join the $10 billion North America grocery business, which will also include Oscar Mayer and Lunchables. An as-yet-unnamed “taste elevation” group with about $15 billion in annual sales will include Heinz ketchup, Philadelphia Cream Cheese and Kraft Mac & Cheese.“Scale by itself is not the answer,” CEO Carlos Abrams-Rivera told the Wall Street Journal. Last week Keurig Dr Pepper confirmed its coffee and soda businesses are divorcing, and Kellogg’s split cereals and snacks in 2023.
• Boeing’s boom? There’s some relief for Boeing $BA in sight, as it lands a raft of potential orders. Korean Air just signed up for 103 airplanes, which would be delivered over the next five years if the deal is finalized. That would add to Korean’s 72 Boeing planes already on order. Boeing didn’t put a dollar value on the proposed deal, but said it would support as many as 135,000 jobs across the U.S. Meanwhile, Canada’s closely held WestJet discount airline has ordered 67 Boeing jets to be delivered through 2034, with options on another 25 jets.
• Bad Spirits: Sometimes it helps to repeat yourself. Spirit Airlines $FLYYQ has declared bankruptcy again, less than six months after it exited a previous Chapter 11 filing. Rising competition, expensive aircraft leases, and travelers fed up with its no-frills-at-all service left the carrier unable to pay its bills. Spirit hasn’t made a profit in over five years, and rejected two merger proposals from rival discount airline Frontier. “They’re hoping to turn their operations around, but it’s not clear if they’re going to be able to,” Sarah Foss, an expert in distressed companies with Debtwire, a business intelligence service, said in an interview with BBTW. “They’ve entered bankruptcy in what we call a free fall,” she said.
• Pepsi’s challenge: Once the perennial number two soft drink in America, Pepsi $PEP has fallen to fourth place, behind Keurig Dr Pepper’s $KDP Dr Pepper, and Coke’s $KO Sprite. Coke itself remains at number one. But activist investor Paul Singer’s Elliott Investment Management thinks Pepsi can recover, and has amassed a $4 billion stake, about 2% of the $200 billion company, to push Pepsi to make changes, including franchising many of its company-owned bottling plants, and ending the use of separate trucks to bring soda and snacks to the same stores. Pepsi has previously come under pressure to split beverages from food, and create two standalone companies. PepsiCo brands include Mountain Dew, Gatorade, Lay’s, Doritos, and Quaker Oats. Shares in Pepsi are down nearly 18% in the past year.

Get Big Business This Week in your inbox every week—and read it before everybody else! Sign up today.

The short stack

• American dream? All those huddled masses yearning to breathe free? Fuggedaboutit. A Wall Street Journal/NORC poll found that nearly 70% of respondents said the American dream — that if you work hard, you’ll get ahead — no longer holds true or never did, the highest level in 15 years of surveys. Only 25% of Americans say they believe they can improve their standard of living, a record low in surveys dating to 1987. More than 75% said life will not improve for the next generation.
• The Bad Bunny bump: The Spanish-speaking rapper’s three-month, 30-show residency is bringing a Bad Bunny Bump to the economy of his home island, Puerto Rico. About 600,000 people are expected to visit the Island during what’s usually a slow season for tourists, with an estimated $250 million direct economic benefit, and a knock-on effect of about $400 million, according to Moody’s Analytics. Bad Bunny’s 2024 world tour took in $208 million — not quite the Taylor Swift Eras Tour tally of $2 billion, but it’s cash Puerto Rico needs. The island is struggling with decades of economic mismanagement, the end of a big tax break that kept U.S.pharma firms manufacturing there, and the aftereffects of Hurricane Maria in 2017. In fact, Moody’s raised its economic growth forecast by 25% (to 0.4% from 0.3%) just because of Bad Bunny.
• Billions n’ billions: Anthropic, the B2B AI company that’s winning customers away from Google $GOOGL and OpenAI, said it raised $13 billion in its latest fundraising round, nearly three times the $5 billion it set out to collect. That would value the company at an eye-popping $183 billion. Anthropic makes the large language models that others use to build AI apps and has an AI assistant named Claude. With more than 300,000 customers, Anthropic said its revenue has hit a $5 billion-a-year rate based on August sales.
• Aldi uber alles? German-born discount grocery chain Aldi says it plans to open 200 more stores in the U.S. this year, and 600 more by the end of 2028, making it America’s fastest-growing retailer this year after Dollar General and Family Dollar. Aldi is now the third-largest grocery chain in the U.S. by store count, after it bought Winn-Dixie and Harveys from Southeast Grocers in 2023.

The media mirror

• And they’re off. Fox Sports $FOX has $2 on Saratoga to win at the Nielsens. The elegant, summertime horse track in Saratoga Springs, New York, is getting more viewers (average 501,000) than NHL regular season games on Warner Bros Discovery’s $WBD TNT (281,000). Fox has a 25% stake in the New York Racing Association’s online betting platform NYRA Bets. Last year it took in bets worth $715 million, up from the $306 million it handled when it launched in 2016.

Trumplandia

• Tariff legality: A federal appeals court tossed nearly all of President Trump’s tariffs late Friday, saying he lacked the authority to impose them, but the court let the levies stay in place until mid-October so the Trump Administration can appeal to the Supreme Court. Trump has been using the International Emergency Economic Powers Act for tariffs. The court said that’s limited to sanctions and embargoes, and most tariff power is in the hands of Congress. Foreign postal services have stopped shipping packages after the so-called de minimis exemption expired (that’s the one that let you buy Shein dresses from China and Latvian coat pegs, duty-free, worth up to $800.) Last year, 4 million of these packages a day entered the U.S…. America’s soupmaker, Campbell’s $CPB (down 36% this year), said President Trump’s 50% tariff on steel will send its earnings per share down 12% to 18% for 2025, as soup cans get more expensive. Best Buy $BBY (down 23% this year) CEO Corie Barry said tariffs are already pushing up prices, but warned retailers and suppliers are absorbing some of the cost of the new duties to keep consumers from walking away. And as fewer goods are being imported, the cost of shipping a container from China to Los Angeles plummeted to $1,802 on Sept 1, from $5,553 in June. The National Retail Federation expects a drop of 20% in imports compared with last year for the rest of 2025.
• The family business: The Trump family took in about $5 billion, at least on paper, as its flagship crypto venture, World Liberty Financial, began trading a new digital currency, but within a day, the price of the WLFI coin fell nearly 50%. The Trumps own about a quarter of all the WLFI tokens that are now trading, but their stake is currently locked up. CoinTelegraph reports the company “burned” or removed from the market 0.19% of its supply in an effort to boost prices. Another Trump crypto venture, American Bitcoin $ABTC, a cryptocurrency mining venture, surged in its Nasdaq debut on Wednesday but dropped 40% from its opening price by midday Thursday.