President Donald Trump wants the Federal Reserve to act fast and lower interest rates, warning that U.S. tariffs are already affecting the economy.
“The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy,” Trump posted on Truth Social. “Do the right thing. April 2nd is Liberation Day in America!!!”
The Federal Open Market Committee (FOMC) held its meeting on Wednesday and decided to keep its benchmark interest rate steady at 4.25%-4.5% for the second straight time. But economic forecasts are shifting. The Fed cut its growth projection to 1.7%, down from 2.1% just a few months ago. At the same time, inflation expectations jumped to 2.8%, up from the previous 2.5% estimate. This means the U.S. economy could be facing stagflation, a combination of slow growth and rising prices.
Federal Reserve warns of economic risks
The FOMC acknowledged the uncertainty, saying the risks around the economic outlook have increased. Officials also made it clear that they are closely watching inflation and economic growth, but they didn’t move to cut rates just yet.
Inflation concerns are growing as Trump’s trade policies start hitting American businesses. Tariffs on major U.S. trading partners are expected to raise costs for companies and consumers, making everything more expensive. Fed Chair Jerome Powell addressed this issue, saying, “Inflation has started to move up now. We think partly in response to tariffs, and there may be a delay in further progress over the course of this year.” He also noted that businesses and households are showing “significant large rising uncertainty and significant concerns about downside risks.”
Despite inflation concerns, the Fed still expects to cut rates twice before the end of 2025. The dot plot, which shows where officials expect interest rates to be, now predicts a 3.9% rate by year-end, meaning a target range of 3.75%-4%. But not everyone agrees. In January, only one official opposed rate cuts, but now four FOMC members believe rates should stay where they are for the rest of the year.
Markets react as investors watch economic data
Stock markets moved after the Federal Reserve confirmed it still plans to cut rates later this year. Dow Jones futures went up 71 points, S&P 500 futures rose 0.3%, and Nasdaq 100 futures climbed 0.4%.
Markets have been trying to recover from losses that started in February. On Wednesday, the Dow gained 0.9%, the S&P 500 jumped 1%, and the Nasdaq Composite added 1.4%. But the Nasdaq is still in correction territory, meaning it remains more than 10% below its high. The S&P 500, which briefly slipped into correction last week, is now 7% off its record high and could break its four-week losing streak.
Some investors aren’t too worried about inflation just yet. Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, said, “The market reaction, to me, says that investors are willing to believe that tariffs and other policies won’t create lasting inflationary pressures and that the Fed can stay in control.”
Earlier this month, Trump warned that the economy could go through a “period of transition” as his tariff policies take effect. He temporarily lifted duties on some Canadian and Mexican imports, but that exemption is set to expire on April 2.
Now, investors are waiting for more data. Weekly jobless claims, the Philadelphia Fed’s manufacturing survey, and a report on existing home sales are all scheduled for release on Thursday.
