US President Donald Trump is getting lower interest rates across the globe, but not at home, where the Federal Reserve has chosen to diverge from its peers. The European Central Bank, Bank of Canada, and Bank of England have cut rates recently, strengthening the value of the dollar, which could complicate Trump’s trade goals by making imports cheaper and US exports more expensive.
The Fed, however, has kept interest rates steady for now, citing a strong economy and uncertainty over Trump’s policies. This policy divergence between the Fed and its peers is expected to put upward pressure on the dollar, potentially easing some of Trump’s trade goals.
Trump had previously demanded lower interest rates globally, but the Fed has chosen not to act yet. The US economy has been operating at full employment, with output and growth near or beyond its potential. Inflation is nearly contained, but the Fed is waiting for more information before making any decisions.
The policy divergence highlights the different paths the US and global economies have taken since the COVID-19 pandemic. The US has maintained above-trend economic growth, while Europe is on the doorstep of recession. This situation leaves Trump with a potential dilemma: how to improve on the economic results of the Biden administration in an economy that may be operating at full employment.
The Fed’s decision not to act yet is seen as “policy purgatory” by some economists, who note that Powell’s replies to reporters’ questions were peppered with phrases indicating caution. With dozens of executive orders and tariff announcements pending, the Fed doesn’t know what is next, making it difficult for them to make any decisions.
As the dollar continues to appreciate, imports may become cheaper, while US exports become more expensive. This could further complicate Trump’s trade goals, which aim to rebalance global trade in favor of the US. However, the situation remains fluid, and clarity on European politics, the Ukraine war, and the nature of European concessions are needed to ease pressure on the dollar.
Source: https://www.reuters.com/markets/rates-bonds/trump-is-getting-lower-interest-rates-he-demanded-everyone-fed-2025-01-31