Will Trump’s Tariffs Push the Fed to Cut Interest Rates? The Struggle Unveiled!

The Federal Reserve has chosen to keep interest rates steady, maintaining the key lending rate between 4.25% and 4.5%. While this decision faced pressure from President Trump to lower borrowing costs, it was largely anticipated by economists. In a historical twist, more than 30 years, two members of the Fed dissented, advocating for a cut, suggesting a growing concern among some policymakers for potential economic slowing.

Recent data reveals that the US economy experienced a 3% annual growth rate in the second quarter of the year, rebounding from a contraction in the first quarter, heavily impacted by Trump’s tariffs. However, experts caution that beneath this headline growth figure, there are signs pointing to an economy that is losing momentum, as pointed out by Jim Thorne, a financial strategist.

The Fed usually opts to cut rates during economic downturns and raise them amid rising prices. Despite external pressures and the influence of tariffs, Fed Chair Jerome Powell emphasizes a cautious approach, pointing out that inflation has surged to 2.7%, surpassing the Fed’s 2% target. Policymakers express concerns about how tariffs could stifle growth, strike sales, and affect investment flow.

Powell remains non-committal about whether a rate cut may occur in September, despite expectations in financial markets. He’s noted that there is a considerable amount of uncertainty regarding the full impact of tariffs on the economy, already showing signs of moderation in growth. Andrew Hollenhorst from Citi warns of the dangers of delaying necessary actions, especially as job creation shows weakness, despite a low unemployment rate of 4.1%.

Trump’s reaction to the Fed’s decision has been vocal, calling for immediate rate cuts to stimulate the economy, framing it as a way to save taxpayer money and boost the housing market. His comments have also flirted with the idea of removing Powell from his position, although most recently he softened his tone, suggesting a belief that Powell would eventually “do the right thing.” As the economic landscape remains in flux, the Fed finds itself in a balancing act regarding rates and the overarching effects of tariffs.