President Donald Trump hopes the Federal Reserve will act fast and low interest rates, warning that US tariffs are already affecting the economy.
“As U.S. tariffs begin its path to the economy (easiness!), the Fed will have a much better cut rate,” Trump posted to The Truth Society. “Do the right thing. April 2nd is America’s liberation day!!”
The Federal Open Market Committee (FOMC) held a meeting on Wednesday, and decided to stabilize the benchmark interest rate at 4.25%-4.5% for the second consecutive time. However, economic forecasts are changing. The Fed reduced its growth forecast to 1.7% from 2.1% just months ago. At the same time, inflation expectations jumped to 2.8% from the previous 2.5% estimate. This means that the US economy may be facing stags. This is a combination of slow growth and price increases.
The Federal Reserve Warns of Economic Risks
The FOMC acknowledged the uncertainty and said risks regarding the economic outlook have increased. Authorities also revealed they were closely watching inflation and economic growth, but they were not yet moving to cut fees.
Inflation concerns have risen as Trump’s trade policies begin to clash with American businesses. Tariffs on major US trading partners are expected to raise costs for businesses and consumers, making everything more expensive. Fed Chairman Jerome Powell tackled the issue and said, “Inflation has started to rise to date. We are partially considering tariffs and further progress may be slower over the course of the year.” He also said businesses and households are showing “significant concerns about uncertainty and negative risks that will rise significantly.”
Despite concerns about inflation, the Fed hopes to cut interest rates twice by the end of 2025. A dot plot showing where the authorities expect interest rates is forecast to have an interest rate of 3.9% by the end of the year, with a target range of 3.75%-4%. But not everyone agrees. In January, there was only one official counter-rate cut, but now four FOMC members believe they should stay in the rest of the year.
Markets react as investors monitor economic data
The stock market has moved after the Federal Reserve confirmed it plans to cut fees later this year. The Dow Jones Futures rose 71 points, with S&P 500 futures rising 0.3%, and the Nasdaq 100 futures rising 0.4%.
The market is about to recover from the loss that began in February. On Wednesday, the Dow increased by 0.9%, the S&P 500 increased by 1%, while the Nasdaq Composite added 1.4%. However, Nasdaq is still in the correction area. In other words, it is 10% or more below the high. The S&P 500, which fell into a brief fix last week, is 7% off its record high and could break a four-week winning streak.
Some investors aren’t too worried about inflation yet. “The market response to me says that investors believe tariffs and other policies will not create permanent inflationary pressures and that the Fed can continue to control,” said Elyse Ausenbaugh, head of investment strategy at JP Morgan Wealth Management.
Earlier this month, Trump warned that the economy could go through a “transitional period” as his tariff policies take effect. He temporarily lifted his Canadian and Mexican imported duties, but the exemption is expected to expire on April 2nd.
Investors are currently waiting for more data. The weekly unemployed claims, Philadelphia Fed manufacturing investigations, and reports on existing home sales are all scheduled to be released Thursday.
