Trump Vs The Fed: Who's In Control Of Interest Rates?

Introduction to Federal Reserve Rate Decision Week00:00

This week is the last week before the Federal Reserve decides whether to raise or pause interest rates. The Federal Reserve is supposed to be an independent part of government and not influenced by the president or anyone else. A committee alone decides whether to raise, pause, or cut interest rates.

Trump's Threat to Stop Trade00:32

Trump is now threatening to stop trade with every country the United States runs a trade deficit with unless the Fed cuts rates. Trump has made various attempts to influence the Federal Reserve, especially when Jerome Powell was in power. Kevin Warsh was handpicked and nominated by Trump, so it was believed he would have some influence and would be more open to cutting interest rates. However, interest rates cannot be cut when inflation is rising.

Job Report Analysis and Market Reactions01:31

Trump complained about the job report on Friday and how markets were selling off, yet employers added 162,000 jobs according to the nonfarm payroll report. This was much better than market expectations of 55k or 52k jobs. Earlier in the week, a weak labor market report came out and markets rallied because a weak labor market and aggressive rate hikes cannot coexist. At one point, the Fed rate monitor tool showed a 68% probability that the Federal Reserve was going to raise interest rates.

The Double-Edged Sword of Rate Policy03:01

Raising interest rates would slow down the economy and help bring down inflation, but it also slows down the labor market even more. When the labor market earlier last week came in weak, markets celebrated. Trump had no problem with markets rallying with a weak labor market because it was in his favor. When the labor market proved it was not as weak as expected on Friday, it supported the case for a possible interest rate hike, and markets sold off.