President Donald Trump won the White House on the promise of an economic boom shortly after taking office.
So far, his chaotic trade policy has had the opposite effect.
Economists and policymakers have warned that the chances of a US recession are rising. Even if it isn’t showing up in the hard data just yet — job growth beat expectations in April and inflation cooled in March — consumers, businesses, and markets are showing early signs of pulling back due to uncertainty around the effects of tariffs.
For months, Trump has been urging the Federal Reserve to lower interest rates, arguing the US economy is strong. But since December, the central bank has been in a wait-and-see mode. Following Wednesday’s decision to keep interest rates steady, Chair Jerome Powell’s main message was that Trump’s trade policies were causing too much chaos for the committee to make any moves.
“I think there’s a great deal of uncertainty about, for example, where tariff policies are going to settle out,” he added. “What will be the implications for the economy, for growth, and for employment? I think it’s too early to know that.”
Trump blasted the decision in a Truth Social post on Thursday, calling Powell a “FOOL, who doesn’t have a clue.”
Treasury Secretary Scott Bessent has also said the administration is focused on lowering the 10-year Treasury yield — the interest rate on US government bonds — as a gauge of economic health. Yields shot up as the trade war escalated in April, but have since fallen.
If interest rates came down, that would likely spur more business investment and consumer spending by making borrowing money cheaper. However, if higher demand raises prices for energy, food, and other household staples, that risks pushing inflation back up. The Fed is tasked with managing this balance.
The new tariffs — a big escalation from the previous US trade policy — are expected to raise prices in the coming months. Trump slapped 145% tariffs on imports from China, and most other countries face a 10% baseline tariff. Canada and Mexico are exempt. But those two countries did get hit with a 25% tariff on the cars, steel, and aluminum they send to the US. Both China and Canada have retaliated with their own levies on certain US goods.
On Thursday, the US and UK — one of the largest customers of US goods — announced a trade deal that Trump said would expand American exports of beef, ethanol, chemicals, machinery, and other industrial products.
The Fed, businesses, and shoppers sour on tariff flip-flops
In addition to keeping the Fed from delivering the lower interest rates Trump wants, the tariffs may be starting to dampen consumer enthusiasm.
Trump has acknowledged that the tariffs could lead to some constraints on consumers, but that may be the trade-off to pave the way for a longer-term boom due to more balanced trade, Trump said on NBC’s “Meet the Press” on May 4.
“I don’t think that a beautiful baby girl needs — that’s 11 years old — needs to have 30 dolls,” Trump said. “I think they can have three dolls or four dolls because what we were doing with China was just unbelievable. We had a trade deficit of hundreds of billions of dollars with China.”
There are anecdotal signs that Americans are feeling the impact of Trump’s trade policies. The University of Michigan consumer sentiment index has fallen each month this year. Sentiment was better at the start of 2017, when Trump was first in office, despite higher unemployment rates and comparable inflation.
Spending by low- and middle-income Americans has fallen off this year, while wealthier consumers are status quo.
People started panic-buying cars and electronics. At least a dozen companies have already announced price increases. By next week, the Port of Los Angeles expects cargo volumes from Asia to plummet 35% compared to the same time last year due to tariffs.
