Federal Reserve is indicating 1–2 interest rates cuts till the end of the year. It was not ready for the interest rates cuts for a long time, but in the past 6 months, it has shown positive attitude. The main reason for this is President Trump. Trump has gone after Jerome Powell, the Fed chairman by commenting on him in interviews; the President called the chairman “loco”, asked the public if he could be thrown off his job, and even confirmed his power to bring down Powell.
But Trump’s actions have been the most effective, trade wars, to be specific. Attending regular press conferences, Powell said that there would be changes in the system soon. In 2017, Powell took the pledge as chairman and ensured raise in the interest rates which have not been pushed since the Great Recession. Although the economy has been standing firm, Trump imposed tariff charges on aluminum and steel imports and Chinese goods worth billions of dollars. Fed increased the rates last winter and markets went in dilemma but soon became normal after the President imposed tariffs on Chinese. Trump has forced Fed to upgrade its system to a faster-growing economy.
This uncertainty of Trump’s actions has led to Fed keeping all the options open; including exploring options like rate cutting till July, although many policymakers refused the decision of a shocking rate cut in the meeting of June. In an interview, Powell said that it won’t be wise to react to each and every event, but ensured that the trends and developments are authentic. The main challenge for the Fed is confusion, whether Trump will go on with his actions in trade wars or will pull back. Fed is required to evaluate implication of the trade war on the economy, says expert. They can act aggressively for better growth of the economy. But considering future troubles between Trump and Chinese leadership, they can’t afford to do it.