This move is intended to support his administration's tariff strategy, which is entering a new phase. On Wednesday night, Trump took to Truth Social to advocate for a more lenient monetary policy from Federal Reserve Chair Jerome Powell and his team.
As reported by CNBC, Trump stated, "The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy," further urging, "Do the right thing. April 2nd is Liberation Day in America!!!"
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This statement came shortly after the Federal Open Market Committee, under Powell's leadership, decided to maintain the current interest rate. However, they hinted at the possibility of two rate cuts by the year's end, assuming the typical quarter percentage point adjustments favored by policymakers.
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The mention of April 2nd refers to the anticipated release of a study on global trade by the administration. This report is expected to lead to additional tariffs aimed at rectifying what the administration perceives as an inequitable global trade environment. During a press conference following the meeting, Powell addressed the tariff issue multiple times, emphasizing the uncertainty surrounding their impact. He noted that while tariffs might initially drive inflation, their effects would likely diminish 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," Powell remarked.
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The interplay between lower interest rates and tariffs could potentially fuel inflation. Market expectations suggest that the Federal Reserve might delay any rate cuts until June. It's important to note that reductions in the Fed's rates do not always translate directly into decreased borrowing costs. Ideally, lower rates would help counterbalance the anticipated price increases resulting from the tariffs.
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During his first term, Trump largely refrained from influencing the Federal Reserve's policy decisions. Treasury Secretary Scott Bessent has indicated that the administration's primary focus is on reducing the 10-year Treasury yield to lower long-term borrowing costs, rather than concentrating on the short-term federal funds rate controlled by the Fed.
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Previously, Trump had criticized Powell and the Federal Reserve for raising rates, at one point labeling them as "boneheads" and likening Powell to a golfer unable to make a putt.
The Federal Reserve's latest projections suggest a full percentage point reduction in the funds rate over the next three years, with the current target range between 4.25% and 4.5%.
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This aligns with the administration's broader economic strategy, which seeks to bolster the American economy through a combination of tariffs and monetary policy adjustments. As the administration continues to navigate the complexities of global trade, the Federal Reserve's role in shaping economic outcomes remains a critical point of focus.
