Key facts
- President Donald Trump threatened to halt U.S. trade with countries with which it has a trade deficit unless the Federal Reserve lowers interest rates.
- Trump called on the Fed to reduce borrowing costs to the lowest rate of any country in the world.
- The Fed has kept rates steady since December as it tries to tame inflation.
- Policymakers have signaled they are considering raising rates.
- The U.S. trade deficit in goods and services rose to its biggest gap in 16 months in July.
- Trump cited a Supreme Court decision acknowledging the president's right to halt trade.
President Donald Trump threatened Friday to halt a broad swath of U.S. trade unless the Federal Reserve slashed interest rates, issuing an ultimatum that could prove costly to the economy if carried out. The Fed is a politically independent institution that has long kept rates steady in its efforts to tame persistent inflation.
Trump's demand risked undermining the Fed's work and could choke off commerce in ways that might harm American families and businesses. He made the remarks on social media after the release of August hiring figures, which showed employers added about 162,000 jobs. Trump called on the Fed to reduce borrowing costs to "the LOWEST RATE of any country in the World."
The Fed has kept rates steady since December, attempting to determine if recent economic turbulence is a short-term issue or a longer-term driver of higher prices. In fact, policymakers have signaled they are considering raising rates as soon as this month, after failing for more than five years to bring inflation down to the central bank’s 2% target. Trump, however, insisted the U.S. economy was "STRONG" and could afford to lower borrowing costs, a move that could potentially worsen inflation.
Absent a rate cut, Trump signaled he could interrupt global trade, stating, "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." The list of countries with which the U.S. has a trade deficit is extensive, including Canada, Mexico, European Union nations, and China. The U.S. trade deficit in goods and services rose to its biggest gap in 16 months in July.
Trump's remarks are his latest attempt to pressure the Fed. He has openly shared his views on monetary policy and his willingness to pursue them, even targeting Fed officials who do not align with his stance. The Fed's upcoming decision on interest rates will partly depend on inflation data due next Friday. Investors have increased bets on a possible rate hike after Fed Chair Kevin Warsh signaled openness to the idea in a speech last week.