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Openly pressuring the Fed, even mentioning halting trade with countries with a trade surplus with the US... "It will be better than tariffs"
Unclear if actual implementation is intended... Seen as a move to intensify pressure on Chairman Wash ahead of FOMC
On the 4th (local time), US President Donald Trump announced that if the Federal Reserve (Fed) does not cut benchmark interest rates, the United States will halt trade with countries with which it has a deficit.
As strong US employment boosted the possibility of an interest rate hike, Trump explicitly pressured the Fed to cut rates, even mentioning the extreme measure of halting trade with countries that have a trade surplus with the US.
President Trump welcomed the news on his social media platform Truth Social, stating, "Great employment figures have just been released," and then urged that interest rates should be lowered to the world's lowest level as US credit has strengthened.
President Trump stated, "If they don't lower rates, we will stop trading with the countries we are losing money with," adding, "The Supreme Court has strongly affirmed in foolish and expensive tariff rulings that 'the President has absolute power to do so.'"
He then emphasized, "This will be better than tariffs!" President Trump did not specifically name the countries with which the United States has a trade deficit.
President Trump added, "The Fed Board with a great new leader must get smart. Be patriotic for change. High rates put the U.S. at a very unfair disadvantage and I will not let it happen."
It is interpreted as an intention to protect the US economy by even mentioning the unthinkable card of cutting off trade with countries that have a trade surplus with the US if the Fed does not cut rates at the Federal Open Market Committee (FOMC) on September 15-16.
It is unclear whether President Trump's remarks are actually intended to implement a trade halt or are merely a way to intensify pressure on the Fed.
US CNBC reported, "Taken literally, the threat to stop trading with countries with which it has a deficit is extreme," pointing out that "the US has significant trade deficits with dozens of countries, including major trading partners."
It added that President Trump is resuming pressure on the Fed, which he had eased for a while after the appointment of Fed Chairman Kevin Warsh.
The New York Times (NYT) commented, "If implemented, it would be a powerful ultimatum that would deal a heavy blow to the economy."
US employment conditions improved significantly more than expected last month. Non-farm payrolls increased by 162,000 from the previous month, the largest increase in five months.
As employment growth was stronger than expected, the market gave more weight to the observation that the Fed would raise interest rates this month.
According to CME FedWatch, the federal funds rate (FFR) futures market reflected a 58.2% probability of an interest rate hike by September as of 9:10 AM today. This was an increase of about 10 percentage points from the previous day.
The yield on 2-year US Treasury bonds, which is sensitive to US monetary policy, rose by 0.07 percentage points to 4.41% immediately after the announcement.
During the tenure of former Fed Chairman Jerome Powell, President Trump consistently demanded interest rate cuts, threatening the Fed's independence. After appointing Chairman Warsh, he initially seemed to acknowledge its independence but has gradually increased pressure for interest rate cuts.
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