Μake us preferred on Google President Trump warned on Friday that he might cut off a large portion of U.S. trade if the Federal Reserve doesn’t lower interest rates, an ultimatum that economists say could carry a steep economic price if he follows through.
The Fed operates independently from the White House and has held rates steady for months as it works to bring down inflation that has proven stubborn for years. Trump’s demand threatens to undercut that effort and could disrupt commerce in ways that hurt American households and businesses.
The threat came on an otherwise upbeat day for the administration. New jobs data showed employers added roughly 162,000 positions in August, evidence that the labor market has held up despite a string of disruptions during Trump’s presidency, including the trade war he launched last year and the recently escalating conflict with Iran.
Trump celebrated the jobs report on social media before pivoting to renew his pressure campaign, demanding the Fed cut rates to the lowest level of any country in the world.
Since December, the Fed has kept rates unchanged as it tries to determine whether recent economic instability is temporary or signals longer-lasting inflationary pressure. In fact, Fed officials have hinted they may raise rates as soon as this month, having failed for more than five years to bring inflation down to their 2 percent target.
Trump argued Friday that the economy is strong enough to handle lower borrowing costs, even though such a move could push inflation higher. He indicated that without a rate cut, he might disrupt global trade instead, citing a Supreme Court tariff ruling he says affirms his authority to do so.
The list of countries running trade surpluses with the U.S., meaning the U.S. has a deficit with them, is long and includes neighbors Canada and Mexico, European Union members, and China, according to federal data. Combined, these countries account for a large share of the goods American consumers and companies import.
The overall U.S. trade deficit in goods and services widened in July to its largest gap in 16 months, according to data released this week. Some economists view that as a sign of underlying economic strength, driven partly by rising domestic demand for electronics used in artificial intelligence. Trump sees it differently and has pushed for steep global tariffs to shrink the imbalance.
He called on Fed leadership to act in the country’s economic interest, arguing that high interest rates put the U.S. at an unfair disadvantage internationally.
This is only the latest instance of Trump pressuring the central bank, even after successfully installing his own pick, Kevin Warsh, as Fed chair. Trump has been open about his views on monetary policy and has previously tried to remove Fed officials who disagreed with him.
The Fed’s rate decision later this month will depend heavily on inflation figures due out next Friday. Investors have increased bets on a possible rate hike after Warsh suggested in a speech last week that he was open to the idea, though he stopped short of explicitly calling for one.
Other top Fed officials expressed varying levels of urgency this week. On Thursday, Governor Christopher Waller said a stronger-than-expected inflation report from the Bureau of Labor Statistics would push him to support a rate hike, but that continued signs of easing inflation would lead him to favor holding steady. He noted that a small rate increase now wouldn’t meaningfully move inflation back to the 2 percent target and said he’d rather wait and see if disinflation continues rather than take an unnecessary risk.
Fed Governor Michael Barr said Tuesday that if inflation data keeps improving, the central bank can afford to take more time before deciding on a hike, but that clear evidence of stalled progress would call for decisive action to raise rates.
