Stocks tumble as fallout from Trump tariffs roils markets

(WASHINGTON) — President Donald Trump on Thursday said he will call for a lowering of U.S. interest rates, exerting pressure on the Federal Reserve despite a longstanding norm of political independence at the central bank.

During a virtual address to the World Economic Forum in Davos, Switzerland, Trump demanded a drop in interest rates after calling for a reduction of oil prices set by a group of nations known as OPEC, which includes Saudi Arabia.

The prospect of low oil prices will enable the Fed to dial back its fight against inflation and bring down interest rates, Trump said.

“I’m going to ask Saudi Arabia and OPEC to bring down the cost of oil,” Trump said, later adding: “With oil prices going down, I’ll demand that interest rates drop immediately.”

The U.S. does not belong to OPEC, nor does the president play a role in the organization’s decisions regarding the price of oil sold by its member states.

The central bank is typically insulated from political interference, but several past presidents have sought to influence the Fed’s interest rate policy, including Trump, who repeatedly spoke out in favor of low interest rates during his first term.

On the campaign trail in August, Trump said a U.S. president should have a role in setting interest rates.

Fed Chair Jerome Powell struck a defiant tone in November when posed with the question of whether he would resign from his position if asked by Trump.

“No,” Powell told reporters assembled at a press conference in Washington, D.C., blocks away from the White House.

When asked whether Trump could fire or demote him, Powell retorted: “Not permitted under the law.”

The prospect of a presidential role in setting interest rates drew opposition from both liberal and conservative economists who previously spoke to ABC News.

Critics of an expanded role for the president point to a bout of high inflation in the 1970s and 1980s. Before the inflation took hold, President Richard Nixon had urged Fed Chair Arthur Burns to cut rates in the run-up to the 1972 presidential election.

Nixon’s advocacy is widely viewed as a contributing factor for lower-than-necessary interest rates that enabled inflation to get out of control, some economists noted.

“Allowing the president, any president, to help set monetary policy would eventually wreck the U.S. economy,” Mark Zandi, chief economist at Moody’s Analytics, told ABC News.

The statements from Trump on Thursday came amid a monthslong reduction in interest rates.

The Fed cut interest rates by a total of a percentage point over the final months of 2024, delivering relief for borrowers long-saddled by a prolonged stretch of high interest rates.

The central bank, however, has indicated that it may cut rates less often in 2025 than it previously indicated. Inflation may prove more difficult to bring under control than policymakers thought just a few months ago, according to the bank.

The Fed is set to make its next decision on interest rates next week. The central bank is widely expected to maintain interest rates at the current level of between 4.25% and 4.5%, according to the CME FedWatch Tool, a measure of market sentiment.

Speaking on Thursday, Trump said a lowering of rates could bring about a reduction of interest rates worldwide.

“They should drop all over the world,” Trump said. “They should follow us.”

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(WASHINGTON) — Economists say the uncertainty from President Donald Trump’s tariff threats and mass layoffs of government workers are starting to have a “chilling” effect on the U.S. economy.

“It’s a very difficult business environment, because they can’t plan for what their cost structure is going to be,” said Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security. “It’s adding to investment uncertainty, and some people are holding back on investments.”

Trump has so far imposed 10% tariffs on Chinese imports and says he’ll impose additional 10%, plus 25% tariffs on Canada and Mexico on March 4. Trump also says he will impose “reciprocal tariffs” that match the duties other countries levy on the U.S. That comes on top of tariff plans on cars, semiconductors, steel and aluminum. Even if Trump doesn’t ultimately move forward with all his tariff threats, the mere uncertainty has a chilling effect.

“If one of the inputs of your factory goes up by 25%, you might cut your production and say maybe we’ll have to fire some people,” Ziemba added.

Meanwhile, the Department of Government Efficiency’s slashing of the federal workforce across the country “also impacts consumption, because people are losing their jobs or are afraid of losing their jobs, so that might cause them to save more money,“ Ziemba said.

This week, The Conference Board’s consumer sentiment survey found that it registered the largest monthly decline since August 2021.

“Views of current labor market conditions weakened. Consumers became pessimistic about future business conditions and less optimistic about future income. Pessimism about future employment prospects worsened and reached a 10-month high,” said Stephanie Guichard, senior economist for global indicators at The Conference Board.

“Average 12-month inflation expectations surged from 5.2% to 6% in February. This increase likely reflected a mix of factors, including sticky inflation but also the recent jump in prices of key household staples like eggs and the expected impact of tariffs,” Guichard said.

The Canada and Mexico tariffs would have a sweeping effect, since those are America’s two biggest trading partners. It could raise prices at the grocery store and the gas pump. Ziemba also noted that the cost of cars could increase by several thousand dollars.

“Every time a car part crosses the border, 25% tariffs could be very onerous,” Ziemba said. “We could see the cost of building a house go up quite substantially.”

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(WASHINGTON) — The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, delivering relief for borrowers at the central bank’s last meeting before President-elect Donald Trump takes office next month.

The central bank predicted fewer rate cuts next year than it had previously indicated, however, suggesting concern that inflation may prove more difficult to bring under control than policymakers thought just a few months ago.

The major stock indexes inched downward in trading after the announcement in response to the forecast of fewer rate cuts.

Speaking at a press conference in Washington D.C. on Wednesday, Fed Chair Jerome Powell said the central bank may proceed at a slower pace with future rate cuts, in part because it has now lowered interest rates a substantial amount.

Powell also said a recent resurgence of inflation influenced the Fed’s expectations, noting that some policymakers considered uncertainty tied to potential policy changes under Trump.

“It’s common-sense thinking that when the path is uncertain, you get a little slower,” Powell said. “It’s not unlike driving on a foggy night or walking around in a dark room full of furniture.”

The move marked the third consecutive interest rate cut since the Fed opted to start dialing back its fight against inflation in the fall. The Fed has lowered interest rates by a percentage point in recent months.

However, the Fed’s forecast on Wednesday said it anticipates only a half a percentage point of rate cuts next year and another half-percent cut in 2026.

The benchmark interest rate helps determine loan payments for everything from credit cards to mortgages. Even after recent cuts, the Fed’s interest rate remains at a historically high level of between 4.25% and 4.5%.

The size of the interest rate cut on Wednesday matched investors’ expectations.

The latest rate cut may prove the Fed’s last for many months, experts previously told ABC News.

A recent bout of stubborn inflation could prompt central bankers to freeze interest rates in place as they bring price increases under control. A humming economy, meanwhile, shows little need for the jolt of activity that lower borrowing costs may provide, the experts said.

Consumer prices climbed 2.7% in November compared to a year ago, marking two consecutive months of accelerating inflation, government data last week showed.

Inflation has slowed dramatically from a peak of more than 9% in June 2022. But the recent uptick has reversed some progress made at the start of this year that had landed price increases right near the Fed’s target of 2%.

In August, Trump said the president should have a role in setting interest rates. The proposal would mark a major shift from the longstanding norm of political independence at the Fed.

Powell struck a defiant tone last month when posed with the question of whether he would resign from his position if asked by Trump.

“No,” Powell told reporters assembled at a press conference in Washington, D.C., blocks away from the White House.

When asked whether Trump could fire or demote him, Powell retorted: “Not permitted under the law.”

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