Trump is introducing a new strategy! Linking interest rates to trade deficits: If rates are not lowered, he will consider halting business with countries that have trade deficits.

President Trump exerted strong pressure on the Federal Reserve for significant interest rate cuts once again on Friday and, in an unusual move, directly linked monetary policy to trade policy. Trump stated that the Fed should substantially lower interest rates, or he would stop trading with countries that have a trade deficit with the U.S. This tough stance came after the U.S. non-farm payroll data for August exceeded expectations, and the strong employment data could have weakened the Fed's rationale for lowering rates further. Trump also addressed Fed Chairman Walsh directly, urging the Fed to "be smarter," and claimed that high interest rates put the U.S. at an "unfair disadvantage" in global competition. Non-farm payrolls far exceeded expectations, yet Trump demands significant rate cuts from the Fed. Trump wrote on social media on Friday that the latest employment data "vastly exceeded all expectations," specifically mentioning that American employers added 162,000 jobs in August. Despite strong performance in the job market generally indicating that there is no urgent need for the Fed to cut rates, Trump offered a starkly different rationale. He believes that the U.S. economy and credit conditions have significantly improved, warranting lower financing costs. Trump stated that a stronger country means better credit, and better credit should correspond to lower interest rates. He even suggested that the U.S. should have "the lowest rates in the world" as it did in the past. He then directly targeted the Fed, calling on Walsh and other Fed officials to lower rates and urging them to "act like patriots." The Fed declined to comment on Trump's post. "Cut rates, or stop trading." Trump links interest rates to trade deficits. The most eye-catching statement from Trump this time was the first instance of tying requests for Fed rate cuts to U.S. foreign trade policy. He indicated that if the Fed does not lower rates, he would consider stopping trade with countries that have a trade deficit with the U.S., claiming that this approach is "better than tariffs." He believes that many countries maintain significant trade surpluses with the U.S. because America has allowed such trade relations to continue. If the U.S. stops trading with these countries, they will no longer enjoy their current economic advantages. However, if implemented according to Trump's literal wording, this would be an extremely radical trade policy. The U.S. currently has a trade deficit in goods with dozens of countries, including several of its most important trading partners. Therefore, a complete cessation of trade with countries that have trade deficits could theoretically have a massive impact on global supply chains, U.S. imports, and international financial markets. The White House has yet to further clarify what Trump means by "stopping trade" and what policy tools might be employed. Walsh has just signaled interest rate hikes, while the White House continuously calls for cuts. Trumps comments indicate a significant escalation in the White House's public pressure on the Fed. After Walsh took over as Fed Chair from Powell, public criticism of the Fed had dwindled. However, in the past week, calls from the White House for interest rate cuts have surged again. Vice President Vance publicly stated on Thursday that the Fed should lower rates and characterized rate cuts as an "appropriate and responsible" policy choice based on recent U.S. inflation data. Vance particularly stressed the issue of housing affordability. The average rate for a 30-year fixed mortgage in the U.S. has risen to 6.71%, the highest level in over a year and approaching 7%, with high financing costs continuing to suppress demand for housing. Just a day later, Trump escalated the pressure further, demanding not only that the Fed cut rates but also linking this demand directly to U.S. trade policy. However, the recent policy signals from Walsh conflict sharply with the White House's requests. At the Jackson Hole global central bank conference last week, Walsh emphasized that the Fed must return inflation to the 2% target and indicated that short-term rates are the primary tool for achieving the Fed's dual mandate. His remarks were broadly interpreted in the market as suggesting that if inflation does not cool significantly, the Fed may need to raise rates further. With the midterm elections approaching, high interest rates and inflation have become political focal points. Trumps renewed pressure on the Fed occurs only about two months before the U.S. midterm elections. Persistently high living costs have remained a significant economic concern for voters, while high interest rates further increase the financing costs of housing, cars, and other credit products. This creates a tricky policy contradiction for the Trump administration, which aims to alleviate financing pressures on households and businesses through rate cuts while contending with inflation still exceeding the Fed's 2% target and strong recent employment data indicating significant resilience in the economy and labor market. From a traditional monetary policy perspective, strong employment data could actually provide the Fed with more time to maintain high rates and even support further hikes if inflation accelerates again. Thus, Trumps immediate demand for "substantial rate cuts" following the strong non-farm data further highlights the contradiction between the White House's economic demands and the Feds inflation targets. As the Fed's meeting on September 15-16 approaches, the market will pay close attention to the August inflation data. If inflation remains high, Walsh's previous signals for rate hikes may gain more support; if price pressures noticeably ease, the likelihood of the Fed holding rates steady may increase.