Trump's Tariffs and the Federal Reserve: The Economic Disconnect

Trump's Tariffs and the Federal Reserve: The Economic Disconnect

Right now, people are throwing around the idea that Trump’s tariffs are part of some master plan to tank the economy and bring down interest rates. But here's why that just doesn’t add up.

First, let’s break down what interest rates actually are: They’re set by the Federal Reserve (the Fed) to help stabilize the economy. When inflation is high, they raise rates to slow things down and cool off prices. When the economy is in a recession, they lower rates to encourage spending. This balance is crucial to keeping everything running smoothly.

But, here's the problem. Trump's tariffs—those taxes on imported goods—raise costs. Higher costs = higher inflation. And what do we know about inflation? The Fed raises interest rates to combat it.

Now, the Fed doesn’t act on a whim. They don’t just try stuff out to see what happens. They wait, they measure, and they act carefully. Trump’s tariffs are pushing up inflation, so the Fed isn’t going to cut rates anytime soon. If anything, they might raise them further to control the rising costs.

So, when people say that Trump’s tariffs are going to lead to rate cuts—that doesn’t line up with how the Fed’s been operating for decades. It's all about inflation and unemployment, and right now, inflation’s still a big issue.

Bottom line: Trump's plan to “tank the economy” to get lower rates is a stretch. It’s not how economics works.