Trump issues bombshell demand to Federal Reserve in effort to send economy soaring as ‘Liberation Day’ tariffs loom

Donald Trump demanded the Federal Reserve ‘do the right thing’ and cut interest rates after Chair Jerome Powell said they were going to hold steady. 

The president believes lower rates will help ease the transition to his tariffs against Canada and Mexico. Retaliatory tariffs are coming from the United States on April 2. 

Trump criticized Powell and the Federal Reserve in a post to Truth Social on Wednesday night. 

‘The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy. Do the right thing. April 2nd is Liberation Day in America!!!’

On April 2, Trump will implement ‘retaliatory tariffs’ to offset the import taxes and non-tariff barriers of all trading partner countries. 

Lower rates make it cheaper for businesses to borrow money but crucially it also cuts borrowing costs for ordinary Americans, who then have more to spend on goods and services.

Trump believes that this combined with his tariff plans will make the American economy soar to new heights.  

Powell did say on Wednesday that they planned to cut rates twice later this year but not in time for Trump’s proposed ‘Liberation Day.’ 

Since taking office, Trump has moved to radically redraw global trade flows, already imposing a 20% increase in import duties on goods from China and 25% tariffs on goods from Canada and Mexico that do not comply with U.S.-Mexico-Canada Agreement trade rules.

He has also fully restored 25% tariffs on global steel and aluminum imports.

At the moment, the policy signal from Trump’s tariff plans is unclear, but much would depend on how quickly any tariff-related inflation moved through the economy, and whether inflation expectations stay well-anchored.

He said recent strong inflation readings during the last two months were unexpected but may be due to people buying ahead of tariffs. 

The Fed will try to trace those effects, but there is a lot of ‘noise’ surrounding announcements of tariffs being put on and delayed.

The Federal Reserve has held interest rates steady, but said it still plans to cut them twice later in 2025.

But officials said they inflation is still not under control, and they also revised down growth forecasts – in both cases blaming Trump’s policies such as tariffs.    

The central bank’s decision keeps the benchmark rate between 4.25 percent and 4.5 percent, as analysts expected. 

Powell indicated that, despite fears of inflation caused by tariffs, the Fed would stick to its plan to cut rates twice this year.

That pleased investors, and sent US stock indexes up in afternoon trading, with the S&P 500 rising more than one percent. That helps 401(K)s, which have been battered by sharp declines in share prices in recent weeks. 

While the Fed rate does not directly affect rates for loans, credit cards and mortgages, it strongly influences them. 

‘We do not need to be in a hurry to adjust our policy stance,’ Powell said in comments made after the rate announcement. 

Fed officials marked up their outlook for inflation this year, with their preferred measure of price increases expected to end the year at 2.7 percent versus the 2.5 percent anticipated in December. Both are above the central bank´s 2 percent target.

As well as rising inflation forecasts, the central bank now sees economic growth slowing more than previously expected. 

The Fed also expects the unemployment rate to tick higher, to 4.4 percent, by the end of this year.   

The projections underscore the tight spot the Fed may find itself in this year: Higher inflation typically would lead the Fed to keep its key rate elevated, or even raise rates. 

On the other hand, slower growth and higher unemployment would often cause the Fed to cut rates to spur more borrowing and spending and lift the economy.    

It is the second meeting in a row that the Fed has kept its interest rate at about 4.3% as the central bank has moved to the sidelines as it evaluates the impact of the Trump administration´s policies on the economy. 

Economists forecast that tariffs will likely push up inflation, at least temporarily. But other policies, such as deregulation, could lower costs and cool inflation. 

Powell said rising inflation expectations is in ‘good part’ due to tariffs as a ‘driving factor’. 

President Trump’s tariff headlines sent the S&P 500 into correction territory last week. That is when stocks fall more than 10 per cent from their highs. 

Explaining the Fed’s ‘wait and see’ decision Powell said the new administration’s policy changes in trade, immigration, fiscal policy and regulation will have a combined impact on the economy.

‘It’s the net effect of these policy changes that’ll matter for the economy and for the path of monetary policy’ Powell said.

The combination of higher inflation and slowing growth could lead to a dreaded period of stagflation.

Economists have ramped up warnings a recession may be looming as Americans fall behind on auto loans and consumers long-term expectations for inflation soared to the highest levels since the 1990s

Fed officials are closely watching measures of Americans’ inflation expectations, which spiked in one survey released just last week. 

Inflation expectations – essentially a measure of how worried people are that inflation will get worse – are important to the Fed because they can be self-fulfilling. 

If people expect higher inflation, they may take steps, such as accelerating purchases, that can push prices higher.

Retailers of both high-end and lower-cost goods have warned that consumers are turning more cautious as they expect prices to rise because of tariffs. Retail sales rose modestly last month after a sharp fall in January.