Trump Demands Rate Cuts Amid Fed's Tariff Concerns, Growth Downgrade

U.S. President Donald Trump has reiterated his demand for the Federal Reserve to lower interest rates, pointing to the recent implementation of U.S. tariffs as a key factor. This plea follows the Federal Reserve's decision to keep its benchmark interest rate unchanged, despite Trump's repeated calls for reductions. The central bank has hinted at potential rate cuts later in the year if inflation continues to decrease. However, it has also expressed apprehension that Trump's tariffs could hinder its ability to manage the economy effectively.

The Federal Reserve has downgraded its growth projections for the U.S. economy, citing concerns over the impact of Trump's tariffs on prices. The central bank has acknowledged that the tariffs are driving up prices, which could lead to higher inflation and slower economic growth. The Fed has also suggested that the tariffs might cause a temporary surge in prices rather than a sustained increase in inflation. Nevertheless, the central bank has stressed that there is considerable uncertainty surrounding the economic outlook and that it is prepared to adopt a cautious approach, closely monitoring the economy's development before taking further action.

The Fed's decision to maintain steady rates aligns with adjustments to its growth and consumer price forecasts, raising concerns about "stagflation"—a scenario where economic growth is sluggish but inflation is high. The central bank has predicted that the economy will grow at a slower pace this year and next compared to its projections from three months ago, and that inflation will rise slightly to 2.7% by the end of this year from its current level of 2.5%. Both figures exceed the central bank’s 2% target.

The Fed is closely monitoring Americans' inflation expectations, which saw a sudden spike in a recent survey. Inflation expectations are crucial to the Fed because they can become self-fulfilling. If people anticipate higher inflation, they may take actions, such as accelerating purchases, that could drive prices up further. However, Fed Chair Jerome Powell has downplayed the recent increase as an "outlier" and asserted that, in the long term, Americans still expect inflation to remain under control.

Trump's calls for rate cuts have been met with criticism from the Fed, which has maintained that its policies are designed to serve the best interests of the economy. The central bank has reiterated its commitment to a patient approach, observing how the economy evolves before making any further adjustments. Trump, however, has insisted that he would "demand that interest rates drop immediately," arguing that the Fed's policies are detrimental to the economy.