U.S. President Donald Trump issued a sweeping ultimatum Friday, September 4, threatening to end trade with any country where the U.S. runs a trade deficit unless the Federal Reserve lowers interest rates.
Writing on Truth Social, he stated: “Lower the rate, or I’ll stop trading with countries with which we have a deficit.”
He directly targeted his handpicked Fed Chairman Kevin Warsh, saying: “The Fed Board, with its great new leader, must get smart – BE PATRIOTS for a change.”
The warning came hours after the Labour Department reported U.S. employers added 162,000 jobs in August, more than double economists’ expectations. The unemployment rate held steady at 4.1%.
The US has trade deficits with multiple countries, including leading trading partners such as China (over $200 billion), Mexico, and Canada. In total, the US trade deficit was $1.2 trillion last year.
While Trump has repeatedly called for rate cuts by the central bank, Warsh indicated last week at the Jackson Hole symposium that rate increases could be needed to address persistent inflation, which remains above the Fed’s 2% target at 3.4%. The probability of a rate increase in September was raised to 60% after the latest job numbers came out.
The tweet from Trump was accompanied by a reference to the recent Supreme Court decision on presidential powers concerning tariffs. It is not clear if this threat is applicable to all deficit countries or how it will be put into effect.
The Fed has refrained from commenting on Trump’s tweet. The policy committee of the central bank will convene on September 15-16.
