President says he'll stop trading with other countries if the Fed doesn't lower interest rates
President Trump put fresh pressure on the Federal Reserve after a strong jobs report on Friday. He's shown here speaking at a White House event earlier in the week.
Economists and other analysts offered criticism Friday after President Donald Trump floated the idea of stopping trade with countries that have a trade surplus with the U.S. if the Federal Reserve doesn't lower interest rates.
Trump's threat came in a long social-media post as he reacted to a stronger-than-expected jobs report. "LOWER THE RATE OR I'LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT," the president wrote.
"Asset markets essentially ignored the post - apparently viewing it as venting rather than a credible threat - with no visible impact on rate-hike probabilities, yields , stocks or the dollar, in sharp contrast to the huge swings in market prices on trade and Fed threats in early 2025," said an Evercore ISI team of analysts led by Krishna Guha.
Trump's "renewed pressure on the Fed to cut does nonetheless complicate things even further for [Fed Chair] Warsh," added the Evercore team, which is focused on economics and central banks. But it makes a rate hike "a bit more likely, not less likely," and the decision on rates still will depend on upcoming inflation reports, they said. The analysts put the chances for a hike at the Fed's meeting in two weeks at under 50%, while betting markets recently were putting it just above 50%.
Trump has repeatedly called for lower interest rates during his second presidential term, but persistent inflation has made the Fed look more likely to raise rates in the months ahead, rather than cut them.
The president is making a number of "legal and economic mistakes" with his effort today to put pressure on the Fed's rate-setting committee after the strong jobs report, said Henrietta Treyz, director of economic policy at advisory firm Veda Partners.
"Most egregious" is the pledge that "if interest rates aren't lowered he'll impose a ban on foreign trade," because that would "trigger an immediate supply shock" in the U.S., Treyz told MarketWatch in an email. Another mistake is Trump's suggestion that he should be able to limit the Fed's independence, she added.
Treyz also said it's notable that Trump and his economic team apparently have "discussed the best way to coerce the Federal Reserve and determined that the Supreme Court had left him a loophole in its Feb. 20 ruling," which nixed most of his tariffs at that time.
"The thought process around compelling the Fed to do Trump's bidding has migrated from firing various board members (e.g., Jay Powell and Lisa Cook) to holding the U.S. supply chain hostage by banning imports from foreign nations," she said.
In addition, Treyz said that unfortunately for Trump, she thinks Fed Chair Warsh is trying to distance himself from the president at this point. The biggest issue for Warsh "whether he can assert his own independence and take back some of the sovereignty he's lost since taking over as Fed chair and appearing accommodative to the president over the last few months," she noted.
Trump's post won't have an effect on the Fed, according to Stephen Myrow, managing partner at Beacon Policy Advisors.
"It's him lashing out," Myrow told MarketWatch. However, Beacon's overall view on the Fed is that Warsh will prevent a hike in interest rates before the midterm elections, keeping them at current levels.
"Politics is trumping data, and Warsh is talking tough because he wants the market to do his job for him in the meantime to buy him time," Myrow said.
Justin Wolfers, a professor of public policy and economics at the University of Michigan, said Friday's jobs report was encouraging, but Trump's reaction to the release was discouraging.
"The U.S. got great jobs numbers this morning and the president posted through it in such an absolutely bonkers way that I'm actually now more worried about our economic future," Wolfers said in a social-media post.
-Victor Reklaitis