Trump Threatens Trade Cutoff With Deficit Countries Unless Fed Cuts

President Trump threatened to halt trade with deficit countries unless the Fed lowers rates, after a hot August jobs report lifted hike odds to roughly 60%.

President Trump on Friday threatened in a Truth Social post to stop trading with countries with which the United States runs a trade deficit unless the Federal Reserve cuts interest rates, writing "LOWER THE RATE OR I'LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT" and calling it "BETTER THAN TARIFFS!" In the Oval Office later, he said, "we should be paying the lowest interest rate in the world," arguing each point of interest costs the US $650 billion and rates should be at 1% or half a percent instead of 4%. He named Canada as an example, claiming cutting off trade there would save $90 billion.

The ultimatum arrived hours after a stronger-than-expected August jobs report showed employers added 162,000 positions, roughly double or triple forecasts, with unemployment steady at 4.1% — data that pushed markets toward expecting a rate hike, not a cut. CNBC reports the threat came just two months before the midterm elections, with inflation frustration a dominant theme. That means the president issued the threat precisely as traders bet the Fed would move the opposite way.

Trump directed his demand at Fed Chair Kevin Warsh, his hand-picked successor to Jerome Powell, urging the central bank and its board to "get smart" and "BE PATRIOTS for a change." CNN, via Yahoo, reports Trump confirmed in the Oval Office that he speaks with Warsh. According to HousingWire, Warsh had struck a hawkish tone at Jackson Hole, arguing the Fed is responsible for 65 months of elevated prices, while a week earlier he suggested rate hikes could soon be on the table. Vice President JD Vance also called for lower rates, while National Economic Council Director Kevin Hassett said the administration respects Fed independence but that the argument for holding steady would be "pretty strong." The Fed declined to comment.

Taken at face value, the threat is extreme: the US runs large deficits with dozens of countries, including its top trading partners. CNN reports the US ran its largest deficit with China last year at over $200 billion, followed by Mexico and Vietnam, and a $1.2 trillion deficit with all trading partners overall. According to CNBC, many economists say trade deficits are not necessarily good or bad — they can reflect strong purchasing power, and surplus countries often recycle their dollars into US Treasurys. The New York Times warned the demand risked undermining the Fed's independence and "choking off commerce," per the NewsCord comparison.

Trump claimed the Supreme Court's tariff decision acknowledged the president has an absolute right to halt trade, but Bloomberg, via China Daily HK, reports that any trade embargo would almost certainly trigger a legal challenge, and it is unclear how such action would lower US borrowing costs. Markets reacted negatively to the jobs report on expectations of a Fed hike, and Trump bristled at the stock slide, complaining the market falls whenever good numbers arrive. HousingWire notes the 10-year Treasury yield and mortgage rates showed little reaction despite the strong report. Inflation, which has jumped to 3.4% in July since the Iran war began in February, remains well above the Fed's 2% target.

The Fed's two-day policy meeting begins September 15, with traders pricing in roughly a 60% chance of a quarter-point hike, according to CNN via Yahoo. Fed officials have sent mixed signals: Governor Michael Barr said he is prepared to vote for a hike soon if inflation data does not improve, while Governor Chris Waller said he would wait longer but would support a hike if inflation does not eventually slow. Attention now turns to next Friday's August CPI report, which could settle the direction of policy. HousingWire also notes global tightening is underway, with the ECB expected to raise rates on September 10 and the Bank of Japan debating a hike, meaning Trump's demand runs against the direction of much of the developed world.