President Donald Trump has threatened to cut off trade to countries with which the U.S. has a trade deficit if the Federal Reserve doesn’t lower interest rates, a major escalation of his pressure campaign on the central bank.
Trump made the announcement on Friday after the release of employment numbers that showed that the economy added far more jobs than anticipated last month. The stronger jobs numbers, coupled with still-too-high inflation, increased expectations that the Fed would raise interest rates at its next meeting. In a post to Truth Social, the president called for the opposite.
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“Lower the interest rates because the U.S.A. is a much stronger credit than it was just a short time ago!” Trump wrote. “A STRONG COUNTRY MEANS A LOWER INTEREST RATE – IT’S A BETTER CREDIT…Very simple! We should have the LOWEST RATE of any country in the World, like ‘the old days.’ 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!”
“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. IT’S BETTER THAN TARIFFS! The Fed Board, with its great new leader, must get smart – BE PATRIOTS for a change,” the president added.
Trump appears to be referencing the Supreme Court’s 6-3 ruling in Learning Resources, Inc. v. Trump from February.
In that, the high court ruled that the president can’t use the International Emergency Economic Powers Act to impose blanket tariffs, but left the door open to him using other trade powers under IEEPA to impose a total trade embargo under a declared national emergency.
Trump appointed Kevin 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. That has not happened so far, as the energy price shock from the Iran war has made taming inflation more challenging.
Up until Friday, Trump had said that, while he favored rate cuts, he supported Warsh acting according to his own judgment.
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Warsh and the Fed have held rates steady the past few meetings, although Warsh struck a hawkish tone during his annual address last month, leading many to think there might be an interest rate hike in September.
Trump’s new message complicates that picture and breaks with the norm in recent decades that the White House allows the Fed to conduct monetary policy independently.