President Trump says the Federal Reserve must lower interest rates or else he will cut off trade with countries that sell a ton of goods to the U.S. but don’t buy as much from American producers.
Mr. Trump tied trade deficits with other countries, a longtime fixation of his, with interest rates as the central bank gets skittish about stubborn inflation and leans toward a rate hike this month to tamp down prices.
The president said the Supreme Court ruling this year, which invalidated his use of a 1977 economic-powers law to impose tariffs, expressly granted him the ability to cut off trade instead.
“LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT, which the U.S. Supreme Court, in its ridiculous and very costly Tariff decision, strongly acknowledged ‘the President’ has an absolute right to do. IT’S BETTER THAN TARIFFS!” Mr. Trump posted on social media. “The Fed Board, with its great new leader, must get smart — BE PATRIOTS for a change. High interest rates put the U.S.A. at a very unfair disadvantage, and I won’t allow that to happen!”
The threat to tie interest rates to trade deficits was unusual.
The U.S. runs trade deficits with leading partners, including Canada, Mexico and the European Union, so cutting off trade would be an extreme step.
It’s a sign that Mr. Trump is ramping up his pressure campaign on his handpicked Fed chairman, Kevin Warsh, ahead of the bank’s rate decision on Sept. 16.
CME FedWatch, a key forecaster, said Friday there is a 60% chance the Fed will decide on a 0.25 percentage point rate increase at the meeting.
Yearly inflation is running above 3%, while the Fed’s preferred target is 2%. Mr. Warsh has pledged to usher in price stability.
Yet Mr. Trump believes the U.S. is a rich and productive country that should enjoy preferable borrowing rates to supercharge growth.
“EMPLOYERS ADDED 162,000 JOBS IN AUGUST. Lower the interest rates because the U.S.A. is a much stronger credit than it was just a short time ago!” he posted. “A STRONG COUNTRY MEANS A LOWER INTEREST RATE — IT’S A BETTER CREDIT. … Very simple!”
Markets were down on Friday as investors digested the news. In particular, investors are worried because the robust jobs report lets the Fed focus on high prices and lean toward a rate hike.
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