by Martin Armstrong
Armstrong Economics
President Donald Trump is urging the Fed to cut interest rates to offset the inflation that will be caused by tariffs. “The Fed would be MUCH better off CUTTING RATES as U.S.Tariffs start to transition (ease!) their way into the economy,” Trump wrote. “Do the right thing. April 2nd is Liberation Day in America!!!” Reducing interest rates will NOT offset inflation caused by tariffs because the two variables are not directly related.
Tariffs increase costs due to supply, while interest rates influence demand. When tariffs are imposed, the cost of imported goods rise, increasing prices for consumers and businesses. This cannot be offset by lowering interest rates, as rate cuts stimulate borrowing and investment rather than addressing price increases caused by trade barriers. In fact, lower interest rates can exacerbate the problem by weakening the currency, making imports even more expensive, further fueling inflation.