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Trump pressures Fed
U.S. President Donald Trump said on Friday that unless the Federal Reserve cut interest rates, he would stop trading with countries with which the United States had a deficit.
“unless the Federal Reserve cut interest rates, he would stop trading with countries with which the United States had a deficit”
Trump tied the demand to the August jobs report, after the Bureau of Labor Statistics reported employers added 162,000 jobs last month.
In a Truth Social post, Trump wrote, "LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT," and he added that "High interest rates put the U.S.A. at a very unfair disadvantage, and I won't allow that to happen!"
The Hill reported that the Fed has held rates steady at a range of 3.5 to 3.75 percent at its last five meetings, while inflation remained above the central bank’s 2 percent target.
Reuters reported the threat came as traders boosted bets on a hike later this month after the stronger-than-expected job creation in August.
Warsh and the Fed
Trump directed his pressure at Fed Chairman Kevin Warsh, whom he called "great" and urged the Fed Board to "get smart" and "BE PATRIOTS for a change".
In the Oval Office, Trump told reporters, "I speak with him, yeah," referring to Warsh, after he had repeatedly demanded the Fed cut rates.
The Hill said traders were pricing in a 60 percent chance that the Fed hikes rates by a quarter point at its next meeting this month, according to CME FedWatch.
CNN reported that Fed officials meet later this month to decide where rates should be, and it said rate hike odds jumped to 60% from 49% on Thursday.
CNN also quoted Warsh from the Fed’s annual Jackson Hole symposium, saying, "Otherwise, we have work to do," if underlying inflation is not moving toward the bank’s 2% target.
Trade threat and fallout
Trump’s threat framed high rates as a cause of unfair disadvantage, while the trade cutoff was presented as leverage tied to deficit countries.
“Mr. Trump’s demand risked undermining that work, all the while choking off commerce”
The New York Times said Trump’s demand risked undermining the Fed’s politically independent work and could "choking off commerce" in ways that could harm American families and businesses.
CNN reported that if Trump follows through, it could put further upward pressure on prices, but it said that assumes U.S. businesses can quickly find alternative suppliers for goods they had been sourcing from those countries.
CNN also cited the scale of U.S. trade deficits, saying the U.S. ran its largest trade deficit with China last year at over $200 billion, followed by Mexico and Vietnam, and that overall the U.S. ran a $1.2 trillion trade deficit with all trading partners last year.
In the same Truth Social post, Trump wrote, "IT’S BETTER THAN TARIFFS!" and he added that the Fed Board "must get smart - BE PATRIOTS for a change."