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Major Wall Street banks are holding discussions with the Trump administration to influence emerging policy proposals aimed at reducing the cost of living in the United States, even as they raise concerns over the effectiveness of several headline measures. Bank executives have pushed back against ideas such as capping credit card interest rates, warning of potential disruptions to credit availability, while offering alternative suggestions focused on retirement savings, intergenerational wealth transfer and housing supply. The engagement reflects broader efforts by the financial sector to steer policy outcomes ahead of the US mid-term elections, with affordability remaining a critical voter issue. However, industry sources caution that most proposals under discussion are unlikely to deliver immediate relief, particularly in housing, where structural supply constraints continue to exert upward pressure on prices despite easing inflation.
Major Wall Street banks are actively engaging with the Trump administration to help shape its evolving policy agenda on affordability, as concerns over the rising cost of living continue to dominate political and economic discourse in the United States ahead of the mid-term elections. The discussions, taking place on the sidelines of the World Economic Forum in Davos, reflect an attempt by the financial sector to influence policy direction while mitigating potential risks to credit markets and financial stability. Advertisement
According to people familiar with the talks, banks have expressed reservations about some of President Donald Trump's proposals, particularly the idea of capping credit card interest rates. While the administration has positioned the proposal as a way to ease financial pressure on households, bank executives have warned that such caps could have unintended consequences, including tighter credit conditions. Industry leaders argue that lenders may respond by reducing credit limits, restricting access for higher-risk borrowers, or repricing other financial products to offset potential losses.
Instead of rate caps, banks have suggested alternative approaches that they believe could address affordability concerns more sustainably. One area of focus has been retirement savings and wealth transfer. Executives have proposed encouraging earlier intergenerational transfers of wealth, including allowing parents and grandparents to draw from retirement accounts to help fund housing downpayments for younger family members. The rationale, according to sources, is that older generations typically have larger pension balances and greater financial flexibility than younger, first-time buyers.
Housing affordability has emerged as a central theme in these discussions, with bankers and investors highlighting supply constraints as a fundamental challenge. While proposals to increase purchasing power may support demand, industry participants caution that without parallel measures to expand housing supply, prices could rise further. One idea raised in policy discussions is allowing older homeowners to sell their primary residences without incurring capital gains tax, potentially increasing the availability of homes and easing pressure in tight housing markets.
The engagement between banks and policymakers comes against a backdrop of lingering economic anxiety among US voters. Although inflation has eased significantly from its post-pandemic peak, the cost of essential goods and services, particularly housing and groceries, remains elevated. These pressures played a key role in shaping voter sentiment during the 2024 presidential election and continue to pose political risks for Republicans heading into the mid-term polls.
Senior banking executives have publicly endorsed the administration's focus on affordability, even while questioning specific policy tools. Citigroup chief executive Jane Fraser indicated earlier this week that congressional approval for credit card interest rate caps appears unlikely, noting that while affordability is a legitimate concern, such measures could prove counterproductive for the wider economy. US Treasury Secretary Scott Bessent has also acknowledged the need for discussion around credit card practices, suggesting that a range of policy options remain under consideration.
Despite ongoing dialogue, people involved in the discussions caution that meaningful improvements in affordability, particularly in housing, will require time, structural reforms and political patience. As a result, many of the ideas under review are unlikely to deliver visible results before the mid-term elections, even as the administration continues to signal urgency on the issue.
Source - Reuters
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