By Paritosh Bansal
DAVOS, Switzerland, Jan 21 (Reuters) – Major Wall Street banks are pushing back on some of President Donald Trump’s ideas for lowering the U.S. cost of living ahead of mid-term elections, while suggesting others in an effort to shape policy, sources familiar with the discussions said.
Wall Street has voiced doubts about the effectiveness of some of Trump’s proposals to improve affordability, such as capping credit card interest rates, which hit major bank shares.
Banks are instead suggesting alternatives such as encouraging more retirement savings and earlier transfer of wealth from parents to children, the sources said.
However, none of the ideas are likely to have a substantial impact on affordability, which has become a hot-button issue for voters, ahead of the November elections, added the sources, who discussed the talks on condition of anonymity.
The sources told Reuters on the sidelines of the World Economic Forum’s annual meeting in Davos, Switzerland, that they are talking with Trump administration officials and waiting for clarity on policy before taking any action.
“We’re saying, ‘What are you trying to achieve? Let’s figure out ways to help you,'” a top U.S. banking executive said.
Economic issues, such as the soaring cost of living for Americans, helped Trump win the 2024 presidential elections.
While inflation has come down since its peak after the COVID-19 pandemic, prices of necessities such as housing and groceries remain high, threatening Republicans’ prospects in mid-term elections.
Trump has made a flurry of proposals to lower the cost of living. These include a call to lower credit card rates and plans to allow investors to use some of their retirement funds to make a down payment on a house.
He is expected to address the issue in Davos on Wednesday.
The White House and U.S. Treasury did not immediately respond to requests for comment on the discussions with banks.
RIGHT TO FOCUS ON AFFORDABILITY
Some bank CEOs have publicly supported the focus on affordability, even if they do not agree with the caps on credit card fees. Investors have also questioned the effectiveness of letting people borrow from their retirement accounts to pay for downpayments, saying the bigger issue was supply of houses.
Citigroup CEO Jane Fraser said on Tuesday she does not expect Congress to approve caps on credit card interest rates.
“The President is right in focusing on affordability,” Fraser said in an interview with CNBC from Davos. “But capping rates would not be good for the U.S. economy,” she added.
The sources said price caps affect credit card availability and pricing. One way banks might respond if it were to be put in place, for example, is by substantially reducing the size of the credit line they offer customers to limit losses, one said.
U.S. Treasury Secretary Scott Bessent said on Tuesday it was not unreasonable to have a discussion on the practices of credit card companies and a number of things can be considered.
The Trump administration has been engaging with banks to shape policy, the sources said.
One said an effective way to tweak the proposal on letting Americans borrow from their 401K retirement savings for housing downpayments would be to let parents and grandparents do it for their children.
The logic is that they would likely have more money in their pension plans than someone just starting in their career.
One problem, however, is that without additional supply of housing, it could put further pressure on pricing. An idea to increase the supply of housing, this person said, would be to allow older people to sell their homes tax-free.
But changing the housing situation in would require “patience that no one has”, the source said.
Asked how the Trump administration had responded to some of these ideas, the source said: “They listen. They’ve got smart people in there working hard at this stuff.”
(Reporting by Paritosh Bansal; additional reporting by Laura Matthews; Writing by Megan Davies; Editing by Alexander Smith)
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