Trade Threats and Interest Rates

Trump Threatens to Stop Trade Unless US Lowers Interest Rates

President Donald Trump has threatened to stop trade with countries that run a surplus with the US unless the Federal Reserve reduces its interest rates, tying together two unrelated issues. The president, who does not set interest rates and the Federal Open Market Committee, does not directly set trade policy. However, he argued that the Fed should reduce rates by comparing the Fed's rate to the interest one might pay on a home mortgage, automobile loan or business loan based on individual credit score. This is not directly connected to the Fed’s rate decisions, which are made without reference to the bilateral trade balance. The government's borrowing costs are based on the yield on Treasury securities, which is set by investors in the bond market rather than by the Fed. Despite this, the threat could be beyond his authority and raise borrowing costs he claims should be lower due to his administration's policies.

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