Trump Threatens Economic Hostage Crisis Over Interest Rates

President Donald Trump's proposed monetary policy is simple and unsettling. If the economy is sluggish, cut interest rates. If it's heating up, lower them as well. Now, there's a new twist: if his chosen Federal Reserve chair won't comply, hold the economy hostage.

In a recent post on Truth Social, Trump threatened to halt trade entirely with any country that maintains a trade deficit with the United States unless the Fed 'gets smart' and lowers rates. This would affect China, Mexico, Canada, Vietnam, South Korea, and dozens of other countries - essentially many of America's top trade partners.

The problem is that cutting off trade would have devastating consequences for the economy. Assuming Federal Reserve Chair Kevin Warsh is as committed to controlling inflation as he claims, he will likely resist Trump's pressure. The Fed has no compelling reason to cut rates now, given stubbornly high inflation of nearly 3.7 percent.

Warsh warned last week that inflation remains above the Fed's 2 percent target, and cutting rates now would only make things worse. With strong job numbers, including a 162,000-job gain in August, Warsh is prudent to leave the door open for a rate hike. National Economic Council Director Kevin Hassett agrees, stating that 'the argument for holding rates steady is pretty strong.'

It's telling that not everyone in the White House is on board with Trump's plan. Hassett said the Fed will do what it wants, and they respect its independence - a view that doesn't seem to align with Trump's actions.