The Federal Reserve’s Federal Open Market Committee (FOMC) held the line on interest rates at its meeting this week, which came as no surprise to the vast majority of investors.
But in the FOMC’s summary of projections, a majority of committee members indicated that there should be two rate cuts this year. That would bring the federal funds rate down to a range of 3.75% to 4.00% from its current 4.25% to 4.50% level.
In a post on Truth Social Wednesday evening, President Donald Trump urged the Fed to make the first cut of the year sooner rather than later.
“The Fed would be much better off cutting rates as U.S. tariffs start to transition (ease!) their way into the economy,” Trump posted. “Do the right thing. April 2nd is Liberation Day in America!!!”
By mentioning April 2, Trump is referring to the date that the tariffs on Canada and Mexico kick in. But beyond that, the administration is planning a much broader tariff plan, according to the Washington Post, one that would place tariffs on trillions of dollars of imports from most trading partners.
A fed rate cut that coincides with the tariff plan could conceivably ease the transition into this new tariff regime by stimulating the economy.
Tariffs Could Raise Inflation
At a press conference on Wednesday, Fed chair Jerome Powell discussed the impact of tariffs on inflation.
“Inflation has started to move up now, we think partly in response to tariffs,” Powell said. But the fed chair said it is hard to know for sure because most of the tariffs have not kicked in yet. “We’re going to have to see how things actually work out,” he added.
In February, the Federal Reserve Bank of Boston issued a report saying the 25% tariffs on Canada and Mexico and the 10% additional tariff on China, could add a minimum of 0.5 percentage points to core PCE inflation.
Powell has stated in the past that moving too fast and too aggressively could hinder the progress the Fed has made on lowering inflation. Powell has said repeatedly that the Fed is in no hurry to lower rates.
The Fed’s next FOMC meeting is May 6-7, so no action could be taken until at least then. However, the market does not anticipate a rate cut in May, as 84.4% of interest rate traders expect the Fed to keep rates where they are in May, according to CME FedWatch.
Most expect the FOMC to make its first move in June, as 64.5% see a 25 basis point cut in June while 11.1% see a 50 basis point reduction.