Stop attacking the Fed and credit card industry, Wall Street executives warn Trump

NEW YORK (AP) — Until this week, Wall Street had generally benefited from the Trump administration’s policies and been supportive of the president. That relationship suddenly became strained.

When President Donald Trump signed the big, beautiful bill into law in July, it pushed through another big round of tax cuts and also cut the budget of the Consumer Financial Protection Bureau, a sometimes nemesis of the banking industry, by nearly half. Bank regulators during the Trump era were also pushing the deregulation agenda adopted by banks and major corporations.

Read more: Top central bankers support Fed Chair Powell in ‘full solidarity’ in clash with Trump

But now the president has proposed a one-year, 10% cap on credit card interest rates, a lucrative business for many financial institutions, and his Justice Department has launched an investigation into Federal Reserve Chairman Jerome Powell, which many say threatens the institution that is supposed to set interest rates without political interference.

Bank CEOs warned the White House on Tuesday that Trump’s actions would do more harm than good to the US economy.

Robin Vince, CEO of the Bank of New York, told reporters that pursuing Fed independence “doesn’t seem to us to achieve the administration’s core goals of things like affordability, lowering the cost of borrowing, lowering the cost of mortgages, lowering the cost of everyday life for Americans.”

“Let’s not shake the foundation of the bond market and maybe do something that might actually raise interest rates, because somehow there’s a lack of confidence in the independence of the Fed,” Vince added.

He watches: Trump attacks the Federal Reserve in his speech to the Detroit Economic Club

The Fed’s independence is sacrosanct among the big banks. While the banks may have wanted Powell and other Fed policymakers to somehow move interest rates more quickly, they generally understood why Powell did what he did.

“I don’t agree with everything the Fed has done. I have great respect for Jay Powell, the man,” JPMorgan Chase CEO Jamie Dimon told reporters on Tuesday.

Besides attacks on the Fed, President Trump is going after the credit card industry. With affordability likely to be a major issue in this year’s midterm elections, Trump wants to cut costs for consumers and says he wants to put a 10% cap on credit card interest rates by January 20. Whether he hopes to achieve this by bullying the credit card industry into capping interest rates voluntarily, or through some sort of executive action, is unclear.

Read more: Why does the Fed’s independence from the White House matter?

The average interest rate on credit cards ranges between 19.65% and 21.5%, according to the Federal Reserve and other industry tracking sources. Researchers at Vanderbilt University found that a 10% cap would likely cost banks nearly $100 billion in lost revenue annually. Shares of credit card companies such as American Express, JPMorgan, Citigroup, Capital One and others fell sharply on Monday as investors worried about the potential earnings hit these banks could face if an interest rate cap is implemented.

In a call with reporters, Jeffrey Barnum, Chief Financial Officer of JPMorgan, indicated that the industry is prepared to fight with all the resources at its disposal to prevent the Trump administration from setting a ceiling on those rates. JPMorgan is one of the country’s largest credit card companies, with its customers collectively holding $239.4 billion in balances at the bank, and it has major co-brand partnerships with companies like United Airlines and Amazon. JPMorgan also recently acquired the Apple Card credit card portfolio from Goldman Sachs.

“Our belief is that actions like this would be completely counterproductive to what the administration wants in terms of helping consumers,” Barnum said. “Instead of reducing the price of credit, it would simply reduce the supply of credit, and that would be bad for everyone: consumers, the broader economy, and for us.”

Even the major partner airlines and hotels that partner with banks to issue their cards were also unhappy with the White House’s push to limit interest rates.

“I think one of the big issues and challenges with (the potential cap) is the fact that it would actually restrict the lower end consumer’s access to any credit, not just the interest rate they pay, which could turn the entire credit card industry upside down,” Delta Air Lines CEO Ed Bastion told analysts Tuesday. Delta has a major partnership with American Express, and its co-branded credit card generates billions of dollars in revenue for Delta.

Trump appears to have doubled down on his attacks on the credit card industry overnight. In a post on his social media platform Truth Social, he said he supported a bill introduced by Sen. Roger Marshall, R-Kansas, that would potentially cut the revenue banks earn from merchants when they accept a credit card at the point of sale.

“Everyone should support the Great Republican Senator Roger Marshall’s Credit Card Competition Act to stop out of control debit fee fraud,” Trump wrote.

The comments from Wall Street come as major banks announce their quarterly results. JPMorgan, the nation’s largest consumer and investment bank, and Bank of New York Mellon Corp., one of the world’s largest custodian banks, reported their results Tuesday with Citigroup, Bank of America, Wells Fargo and others to report later this week.