Trade War Stirs Economic Uncertainty: Fed Remains Stalwart Amid Trump's Calls for Rate Cuts
Fed remains steadfast on interest rate decisions
America is experiencing a financial whirlwind. The labor market is demonstrating resilience, yet President Trump's trade policies are causing ripples of concern. In this turmoil, the Fed sees no reason to alter the key rate, defying Trump's demands to lower the rate. Fed Chairman Jerome Powell persists in keeping the rate elevated.
The Fed, helmed by Jerome Powell, has refused to budge on the monetary policy rate, leaving it within the range of 4.25 to 4.50 percent. Banks can borrow central bank money at this rate. Analysts had expected this move. Trump had frequently requested the Fed to lower interest rates in recent weeks. The central bank justified its decision by citing an increased risk of escalating inflation, which could be a side effect of Trump's aggressive trade policy.
Trump has publicly criticized Fed Chair Jerome Powell, asserting, "I think I grasp interest rates better than he does." Despite operating independently from the US government, the Fed has indicated that it is in no haste to decrease interest rates, setting up a potential standoff with Trump.
Before contemplating any easing, the Fed wants a clearer understanding of how Trump's trade conflict impacts the US economy and prices. The central bank has voiced concerns over the increased uncertainty in the economic outlook.
The economy experienced a surprising contraction at the beginning of the year, marking the end of a long period of growth. Gross domestic product (GDP) fell by 0.3 percent compared to the previous quarter and year-on-year. However, many experts argue against immediate easing, attributing the robust labor market as a reason.
Small Interest Rate Adjustments Expected This Year
The Fed is tasked with regulating inflation. It aims for an inflation rate of 2 percent. US consumer prices rose by 2.4 percent year-on-year in March, compared to 2.8 percent in February. It remains uncertain if this development is sustainable, given that March was before Trump's comprehensive trade package with tariffs on goods from around the world.
High interest rates serve as a tool against inflation, as higher borrowing costs discourage widespread spending and ultimately force companies to keep prices under control. Conversely, elevated interest rates can slow down the economy by encouraging saving.
In September 2022, the Fed initiated a significant rate hike of 0.5 percentage points, following a major inflation wave. In November and December, two smaller steps of 0.25 points each followed. Since then, the central bank of the world's largest economy has kept the key rate steady due to sustained inflation. The Fed predicts an average key rate of 3.9 percent by 2025, hinting at small interest rate adjustments this year.
Trump's Tariffs: A Cause for American Worries
Trump's volatile trade policy has stirred turbulence on financial markets and prompted fierce criticism of Fed Chair Powell. Nevertheless, Trump recently stated that he won't remove the still-serving Fed Chair until May 2026.
Economy "Trump backing off from Fed chair ouster" On April 2, Trump imposed tariffs of 10 percent on imports from most countries, also increasing tariffs for many trading partners, which were then temporarily suspended for 90 days. Additionally, Trump imposed 25 percent tariffs on cars, steel, and aluminum, 25 percent tariffs on Canada and Mexico, and 145 percent tariffs on China. Trump's administration is negotiating with over 15 countries to strike trade agreements, potentially averting the higher tariffs.
Trump has built tariffs into his economic agenda, promising that they will serve to enrich America in the long run and bring back manufacturing jobs. However, businesses and individuals express concerns over the economy due to uncertainty caused by tariffs and fear that they could lead to price increases.
Sources: ntv.de, mpa/dpa/rts/DJ
Topics:
- USA
- Jerome Powell
- Donald Trump
- Fed
- Interest rate
- Monetary policy
- Tariffs
- Trade disputes
- Trade relations
- The Fed, under the leadership of Jerome Powell, has maintained its monetary policy rate, refusing to lower it despite repeated requests by President Trump.
- Critics have labeled Trump's trade policies as a potential side effect of Trump's aggressive trade policy, increasing the risk of escalating inflation.
- Despite Trump's demands, the Fed has shown no intention of altering the key rate, indicating its independence from political influence.
- The Fed is currently assessing the impact of Trump's trade conflict on the US economy and prices before considering any easing.
- Many experts argue against immediate easing due to the robust labor market, suggesting small interest rate adjustments might be expected this year.
