After largely staying out of the Federal Reserve’s business during his first two months in office, President Donald Trump is pushing the central bank to cut interest rates as a backstop for his tariff plans.
In a post Wednesday night on Truth Social, Trump encouraged Chair Jerome Powell and his colleagues to ease policy as the administration enters the next phase of its aggressive trade policy.
“The Fed would be MUCH better off CUTTING RATES as U.S.Tariffs start to transition (ease!) their way into the economy,” Trump wrote. “Do the right thing. April 2nd is Liberation Day in America!!!”
The missive appeared just hours after the Powell-led Federal Open Market Committee voted to keep its key interest rate steady but indicated that two rate reductions are likely by the end of the year, assuming the quarter percentage point increments that policymakers prefer.
The April 2 reference is to when the administration will reveal the results of a study into global trade, likely resulting in further tariffs in an effort to level what it considers an unfair playing field.
At his post-meeting news conference, Powell addressed the tariff issue multiple times, largely reiterating the uncertain impact they could have as justifying the Fed’s cautious current stance. In addition, Powell indicated that the duties could raise inflation in the short run but the impacts then would recede over time.
“I think that’s kind of the base case. But as I said, we really can’t know that. We’re going to have to see how things actually work out,” he said.
Lower rates, however, could combine with tariffs to stir more inflation. Markets expect the Fed will wait until June before cutting. Fed rate reductions also don’t always feed directly into lower borrowing rates. In the best-case scenario, lower rates would help buttress rising prices that are expected to come from the levies.
In contrast to his first term in office, Trump had thus far taken a mostly hands-off approach to Fed policymaking, aside from a few comments he made shortly after taking office also coaxing the central bank to lower rates. Trump in January said he would “demand that interest rates drop immediately,” though he didn’t follow through on the threat.
In fact, Treasury Secretary Scott Bessent has said that the White House is more focused on bringing down the 10-year Treasury yield to lower long-term borrowing costs than it is on the short-term federal funds rate that the Fed controls.
Trump berated Powell and the Fed the last time around for raising rates, at one point calling them “boneheads” and comparing the chair to a golfer who couldn’t putt.
Fed projections Wednesday indicated a full percentage point of cuts over the next three years for the funds rate, which is currently targeted between 4.25%-4.5%.
