Trump Pressures Federal Reserve to Cut Rates as Tariffs Weigh on Economy

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President Donald Trump has called on the Federal Reserve to cut interest rates, citing the negative economic effects of newly imposed U.S. tariffs.

In a post on Truth Social, Trump wrote, “The Fed would be MUCH better off REDUCING RATES as U.S. Tariffs start to ease (slowly!) their way into the economy. Do the right thing. April 2nd is Liberation Day in America!!!”

Trump’s comment refers to the planned imposition of additional tariffs aimed at addressing trade imbalances. The president’s call reflects the growing concern that tariffs are starting to negatively affect economic growth, raising pressure on the Fed to adjust its monetary policy.

Fed Holds Rates Steady, Lowers Growth Outlook

Despite Trump’s remarks, the Federal Reserve announced that it will keep interest rates unchanged, maintaining the benchmark rate at 4.25% to 4.5%.

Fed Chairman Jerome Powell acknowledged that the new tariffs are contributing to increased economic uncertainty, and reducing the GDP growth forecast for 2025 to 1.7% from 2.1%. Also, inflation forecasts have been revised higher, with consumer price inflation expected to reach 2.7% this year, from an original estimate of 2.5%. ​

Inflation expectations have also been adjusted higher, with consumer price inflation now projected to reach 2.7% this year, up from the previous estimate of 2.5%. 

Powell said that the Fed remains committed to its dual mandate of maintaining price stability and supporting maximum employment but indicated that the central bank would implement a cautious approach, waiting until more concrete information was in hand before making policy changes.

“The economic outlook has become more uncertain with the introduction of these tariffs,” Powell said. “We are prepared to adjust policy as necessary to support the economy, but we will remain data-dependent.”

Markets React as Fed Holds Firm Following Tariff Pressures

The decision of the Federal Reserve to keep interest rates unchanged, contrary to the President’s call for lowering rates, has generated mixed reactions in financial markets

U.S. stocks closed higher following the announcement, with the S&P 500 and Nasdaq Composite rising 1.1% and 1.4%, respectively. Meanwhile, the bond market declined in yields, as investors held back following the cautious stance by the central bank.

Economists remain divided on the path forward for the Fed. Some argue that preemptive rate cuts could offset the negative impact of tariffs on growth, while others warn that cutting rates too soon could worsen inflationary pressures. The central bank will have to deal with these rival risks and see the economy through this period of increased uncertainty.

“The Fed is in a difficult position,” said Andrew Collins, chief economist at MarketWatch. “If they cut rates too early, inflation could spiral. But if they wait too long, the economic slowdown could deepen.”

As the tariff impact takes effect, market participants and policymakers will closely monitor economic data for signs of stress. The Fed’s commitment to data-driven policy adjustments will be key in navigating the balance between supporting growth and controlling inflation in an increasingly uncertain environment.

As the dynamics shift, policymakers and market participants alike will scrutinize closely forthcoming economic reports to measure the actual impact of the tariffs and adjust their approach accordingly. The Federal Reserve’s commitment to evidence-based decision-making will be instrumental in maintaining economic conditions stable in the face of these new developments.