In a move that to many signals the end of the Trump boom, Federal Reserve Chairman Jerome Powell said the central bank may have to cut interest rates.
During his speech, Powell conceded that the trade war between the United States and China — and perhaps Mexico and other countries — is beginning to come to a head. While the American economy under President Donald Trump has been praised by financial analysts for historically low unemployment numbers and record-breaking stock market performances, cracks are finally beginning to show.
The Federal Reserve typically cuts its interest rates during economic recessions to making lending easier. In times of economy booms, the Fed will typically raise its rates.
Since taking office in 2017, President Trump has championed a trade war between the United States and China in an attempt to convince the communist state to lower its own trade barriers and cease its involvement in intellectual property theft. The administration has since imposed tariffs on Chinese-imported steel, aluminum, and other goods — and Beijing responded in kind.
Trump’s protectionism was set to expand even further with retaliatory tariffs against the European Union. The dispute was largely resolved, although more negotiations are set to take place.
It’s unclear exactly how Wall Street will react to the news, but markets tend to feel more comfortable knowing that the Fed will step in if it feels like it needs to. The bigger ramifications are political. President Trump is largely running his re-election bid on the success of the economy. If the trade war escalates and smaller businesses are impacted, it will be much harder to sell this message to the American people.
Learn more about the Federal Reserve’s concerns — and how markets are reacting to them — by watching the video below.