President Trump’s administration, including Vice President JD Vance, is pressuring Federal Reserve Chair Jerome Powell to cut interest rates, despite recent inflation data. However, senior columnist Rick Newman argues that Trump’s own tariff policies are counteracting his desire for lower rates.

Newman explains that Trump’s new tariffs on approximately $3 trillion worth of imports will directly increase consumer prices, leading to higher inflation. Lowering interest rates, which would stimulate spending, would exacerbate this tariff-induced inflation. Essentially, the Fed cannot responsibly cut rates when a surge in inflation is anticipated, largely due to the President’s trade policies.

Powell faces a dilemma: he risks angering Trump by not cutting rates, but also jeopardizes the Fed’s credibility by prematurely easing monetary policy during a period of expected inflation. While Trump’s tariffs may not cause inflation as severe as in 2022, economists predict they could push the inflation rate to 3.5%-4% by late 2025. In a scenario without these tariffs, interest rate cuts might have already begun.

Newman concludes that Trump desires both tariffs and loose monetary policy, an incompatible combination. The President likely understands the Fed’s position but also seeks a scapegoat if economic issues arise. Ultimately, Newman asserts that Trump’s tariffs are currently a greater economic threat than interest rates, and that a reversal of his trade war would benefit Americans and allow the Fed to cut rates.

End Notes

Source: https://finance.yahoo.com/news/commentary-how-trump-could-get-the-lower-rates-he-seems-to-desperately-want-195338905.html