Donald Trump urged the Federal Reserve to "do the right thing" and cut interest rates after Chair Jerome Powell announced they would keep it unchanged. The president believes that lowering rates would help ease the impact of his tariffs on Canada and Mexico. The U.S. is set to impose retaliatory tariffs starting April 2.
The Federal reserve has left interest rates unchanged for the second consecutive time this year in its current range of 4.35-4.5%, adopting a cautious approach after inflation started showing signs of rising at the end of 2024. The pause in interest rate comes after the Federal Reserve slashed interest rates by 100 basis points since September.
Trump Urges Fed to Cut Interest Rates
Trump took to Truth Social on Wednesday night to slam Powell and the Federal Reserve over their hawkish stance. "The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy. Do the right thing. April 2nd is Liberation Day in America!!!"
On April 2, Trump will introduce "retaliatory tariffs" to counter the import taxes and trade restrictions imposed by all U.S. trading partners.
Lower interest rates make borrowing costs cheaper for businesses and, more importantly, makes it easier for ordinary Americans to take out loans, giving them more money to spend on goods and services.
Trump believes that, when combined with his tariff strategy, this will drive the American economy to unprecedented success.
On Wednesday, Powell said that the Federal Reserve plans to cut rates twice this year, but not in time for Trump's proposed "Liberation Day."
Since taking office, Trump has taken bold steps to reshape global trade, already implementing a 20% hike in import taxes on Chinese goods and enforcing 25% tariffs on products from Canada and Mexico that do not align with U.S.-Mexico-Canada Agreement (USMCA) trade regulations.
He has also restored the full 25% tariffs on steel and aluminum imports worldwide.
Currently, the economic impact of Trump's tariff strategy remains unclear, largely depending on how quickly any inflation linked to tariffs moves through the economy and whether inflation expectations remain stable.
Trump acknowledged that the unexpectedly high inflation figures over the past two months could be due to consumers making purchases ahead of the tariffs. The Federal Reserve is monitoring these effects, but tracking them is complicated by the ongoing uncertainty surrounding tariff implementation and delays.
Federal Reserve Takes Cautious Approach
While the Fed has kept interest rates steady, it still plans to cut them twice later in 2025. However, officials warned that inflation is not yet fully under control and revised their growth projections downward, attributing both issues to Trump's tariff policies.
Powell signaled that despite concerns about tariff-driven inflation, the Federal Reserve remains committed to its plan to cut interest rates twice this year.
This reassured investors, pushing U.S. stock indexes higher in afternoon trading, with the S&P 500 jumping more than one percent. The rebound is a welcome boost for 401(k) accounts, which have suffered from recent sharp declines in stock prices.
Although the Fed's rate does not directly determine loan, credit card, or mortgage rates, it plays a significant role in shaping them. "We do not need to be in a hurry to adjust our policy stance," Powell said in comments made after the rate announcement.
Federal Reserve officials have raised their inflation outlook for the year, now expecting their preferred inflation gauge to reach 2.7% by year's end, up from the 2.5% forecast in December. Both figures remain above the Fed's 2% target.
In addition to higher inflation expectations, the central bank now predicts the economy will slow more than initially expected. The Fed also foresees a slight increase in the unemployment rate, projecting it to rise to 4.4% by the end of the year.
These projections highlight the challenging position the Federal Reserve may face this year. Typically, rising inflation would prompt the Fed to keep interest rates high or even increase them. However, weaker economic growth and rising unemployment would usually lead to rate cuts to encourage borrowing, spending, and economic expansion.
Economists predict that tariffs will likely drive inflation higher, at least in the near term. However, other measures, such as deregulation, could help reduce costs and ease inflationary pressures.
Powell noted that inflation expectations have been rising, largely due to tariffs being a key contributing factor. Last week, Trump's tariff announcements pushed the S&P 500 into correction territory, meaning stock prices dropped more than 10% from their recent highs.
