On March 20, 2025, President Donald Trump urged the Federal Reserve to cut interest rates to support his tariff plans. In a post on the social media platform “Truth Social” on Wednesday, Trump encouraged Fed Chairman Jerome Powell and other officials to adopt a loose monetary policy to complement the White House’s forthcoming tough trade policy adjustments.
“With the effects of U.S. tariffs beginning to transition to the economy – relaxing is needed! – If the Fed cuts interest rates, the effect would be much better,” Trump wrote. “Do the right thing. April 2nd is America’s Freedom Day!!!”
Trump particularly emphasized “relaxing,” hinting that tariffs will begin to have an impact, possibly in a gradual or less disruptive way. He believes that in order to address this shift, the Fed should consider lowering interest rates to better support the economy during this period.
The President’s post came after the Federal Open Market Committee announced its decision to maintain the federal benchmark interest rate unchanged. The dot plot released after the meeting indicated the possibility of two rate cuts by the Fed within the year.
On April 2nd, the Trump administration will unveil a series of global trade measures, including retaliatory tariffs, which could lead to further tariff increases to balance the unfair trade competition environment.
During Wednesday’s press conference, Powell discussed the tariff issue multiple times, reiterating that tariffs could have uncertain effects and stating that the Fed’s current cautious monetary policy stance is reasonable. Powell also mentioned that tariffs could temporarily raise inflation but their impact would diminish over time.
“I view this as a classic forecasting challenge. But as I’ve said, we really don’t know,” Powell said. “We have to see how things actually evolve.”
Perhaps the Fed is concerned that combining rate cuts with tariffs could trigger more inflation. The market expects the Fed to wait until June to make its first rate cut. In the best-case scenario, a rate cut would help support prices expected to rise due to tariff increases. However, sometimes a rate cut by the Fed does not necessarily lead to a direct decrease in borrowing rates.
Compared to his first term, Trump has mostly taken a hands-off approach to Fed policy making.
Treasury Secretary Scott Bessent stated that the White House is more concerned about lowering the 10-year Treasury yield to reduce long-term borrowing costs rather than the short-term federal funds rate controlled by the Fed.
The Fed’s projections on Wednesday showed that the federal funds rate will be lowered by one percentage point over the next three years. Currently, the target federal funds rate is 4.25% to 4.5%.
Since December 2024, the Fed has maintained a wait-and-see approach on interest rates. In the forecasts released on Wednesday, the Fed lowered its 2025 economic growth expectations and raised its inflation forecasts.