Trump Threatens Tariffs to Block Fed Rate Hike — SkimNews
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- Trump escalated pressure Friday by threatening to halt trade with countries running trade surpluses with the U.S. unless the Fed cuts rates — the first time he has directly tied tariffs to Fed rate decisions.
- VP JD Vance, Treasury Secretary Scott Bessent, and senior economic counselor Peter Navarro all publicly urged the Fed not to raise rates this week; Navarro called FOMC members "clowns" and Vance said "the Fed should be lowering interest rates."
- Fed Chair Kevin Warsh has said the president has had no impact on his decisions and, in July congressional testimony, pointed to the Fed holding rates steady as evidence of the central bank's independence.
- Markets are pricing roughly a 60% probability of a rate hike at the Sept. 15-16 FOMC meeting, bolstered by an August jobs report showing unemployment steady at 4.1% and average hourly earnings up just 0.3%.
- Three Fed officials — Beth Hammack, Neel Kashkari, and Lorie Logan — dissented in favor of a quarter-point hike at the July meeting; Warsh noted in Jackson Hole that 54% of 199 PCE components had risen more than 3% over the prior 12 months.
- The administration cites a three-month annualized core CPI rate of 1.6% versus core PCE just over 3% to argue growth isn't fueling inflation, directly challenging the Phillips Curve premise that output beyond productive capacity drives price increases.
Why it matters: The pressure lands two months before midterm elections where polls show voter dissatisfaction with higher prices and rates. With three FOMC members already dissenting toward hikes and markets at 60% probability of a move, Trump's tariff threat is an unprecedented escalation: he has never before directly conditioned trade policy on Fed rate decisions, putting Warsh's stated independence to its sharpest test.
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