Trump Threatens to Halt Trade Unless Fed Cuts
Trump Threatens to Halt Trade Unless Fed Cuts
The News
President Donald Trump threatened on Friday to cut off US trade with every country America runs a trade deficit with unless the Federal Reserve lowers interest rates.
He made the threat in a post on Truth Social, hours after an August jobs report that beat expectations.
"LOWER THE RATE OR I'LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT, which the U.S. Supreme Court, in its ridiculous and very costly Tariff decision, strongly acknowledged 'the President' has an absolute right to do," Trump wrote. "IT'S BETTER THAN TARIFFS! The Fed Board, with its great new leader, must get smart - BE PATRIOTS for a change."
It is a major escalation of his pressure campaign on the central bank, the Washington Examiner reported.
The Numbers
The US ran a $1.2 trillion trade deficit with all trading partners last year, according to federal trade data cited by CNN. The largest was with China, at over $200 billion, followed by Mexico and Vietnam.
Timeline
Fed Chairman Kevin Warsh strikes a hawkish tone in his annual address, leading many to think there might be an interest rate hike in September. The Fed has held rates steady the past few meetings.
Trump tells reporters in the Oval Office that it is "ridiculous" to talk about raising rates. "It's ridiculous because success in growth does not cause inflation," he said. "Inflation's caused for other reasons."
The August employment report shows the economy added far more jobs than anticipated. Strong hiring plus still-high inflation increases expectations that the Fed would raise rates at its next meeting.
Trump posts the trade threat on Truth Social, demanding cuts instead.
Reactions
In the same post, Trump argued the country has earned cheaper money: "Lower the interest rates because the U.S.A. is a much stronger credit than it was just a short time ago!" He added that the US "should have the LOWEST RATE of any country in the World, like 'the old days.'"
He also claimed the US could shut off other nations' trade surpluses at will: "Without the United States agreeing to allow them their big surpluses, and we could stop that immediately, they would no longer be considered financially ELITE!"
The Washington Examiner reported that the message breaks with the norm in recent decades that the White House allows the Fed to conduct monetary policy independently. Until Friday, the outlet said, Trump had maintained that while he favored rate cuts, he supported Warsh acting on his own judgment.
What's Next
Attention turns to the Fed's September meeting. Warsh's hawkish signals had markets bracing for a possible hike; Trump is demanding the opposite, and his post complicates that picture.
Trump did not say when he would act on the trade threat, name the countries, or specify what legal authority he would use beyond his reference to the Supreme Court's tariff ruling. The story is still developing.
More
Trump appointed Warsh to replace Jerome Powell at the head of the central bank in part with the expectation that Warsh was more likely to lower rates, according to the Washington Examiner. That has not happened so far, as the energy price shock from the Iran war has made taming inflation harder.
A trade deficit occurs when a country imports more than it exports.
Poll
Should the president pressure the Federal Reserve on interest rates?
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