Trump threatens to suspend trade if Fed doesn't cut interest rates

(Washington = Yonhap News) Correspondent Baek Na-ri = U.S. President Donald Trump announced on the 4th (local time) that if the Federal Reserve (Fed) does not lower the base interest rate, the United States will suspend trade with countries running a deficit.

As the possibility of an interest rate hike gained momentum due to strong employment in the U.S., the government blatantly put pressure on the Federal Reserve to lower interest rates, even mentioning the extreme measure of suspending trade with countries with surpluses with the U.S.

President Trump said on the social media platform TruthSocial on this day, "A great employment indicator has just been released," and urged that interest rates should be lowered to the world's lowest level because America's credit has become stronger.

“If we don’t lower interest rates, we will cut off trade with countries that are running deficits,” President Trump said, adding, “The Supreme Court strongly acknowledged in its foolish and costly tariff ruling that ‘the president has the absolute authority to do so.’”

He then emphasized, “This will be better than tariffs!” President Trump did not specifically mention the countries with which the United States has a trade deficit.

“With a great new leader, the Federal Reserve Board needs to be wise,” Trump said, adding, “Be a patriot for change. High interest rates expose America to a very unfair disadvantage and I will not allow this to happen.”

If the Federal Reserve does not lower interest rates at the Federal Open Market Committee (FOMC) on September 15-16, it is interpreted as an attempt to protect the U.S. economy by even mentioning the unexpected card of cutting off trade with countries that are running a trade surplus with the U.S.

It is unclear whether President Trump's remarks were actually intended to halt trade, or whether they were intended to increase the level of pressure on the Federal Reserve.

The U.S. CNBC broadcast pointed out, "If taken literally, the threat to cut off trade with a country running a deficit is extreme," and added, "The U.S. is running a large trade deficit in dozens of countries, including its major trading partners."

He added that President Trump is resuming pressure on the Federal Reserve, which had been eased for a while after the appointment of Federal Reserve Chairman Kevin Worth.

The New York Times (NYT), a US daily, commented, “It is a strong ultimatum that, if implemented, will have a major blow to the economy.”

Last month, the U.S. employment situation improved more than expected. Non-agricultural jobs increased by 162,000 from the previous month, and this increase is the largest in the past five months.

As employment growth showed stronger than expected, the market gave more weight to the prediction that the Federal Reserve would raise interest rates this month.

According to FedWatch of the Chicago Mercantile Exchange (CME), the federal funds rate (FFR) futures market reflected a 58.2% probability of an interest rate increase by September as of 9:10 a.m. on this day. It is an increase of about 10 percentage points compared to the previous day.

The two-year maturity U.S. Treasury bond interest rate, which is sensitive to U.S. monetary policy, rose 0.07 percentage points to 4.41% immediately after the announcement.

Even during former Federal Reserve Chairman Jerome Powell's term, President Trump continued to demand interest rate cuts and threatened the independence of the Federal Reserve. Immediately after appointing Chairman Wash, they took an attitude of acknowledging independence, but are gradually increasing the level of pressure to lower interest rates.