Trump May Cheer a Fed Rate Cut, But It Would Be a Bad Sign About His Trade War

President Donald Trump has been calling for the Federal Reserve to cut interest rates, but the central bank's signal that it could lower rates in the very near future was an indication of concern about the state of the economy and the negative impact of the ongoing trade war with China.

The Fed signaled on Wednesday that it was moving closer to announcing a cut on the federal funds rate, which dictates the rate at which banks can borrow money. Analysts subsequently predicted the central bank would indeed cut rates after the next meeting of the Federal Open Market Committee in late July.

The president has repeatedly and publicly complained about the Fed's previous rate hikes, saying that the body was hurting the U.S. economy by making it more expensive to borrow.

Although Trump will likely cheer a rate cut, the Fed's indication that it could ease rates for the first time in nearly 11 years isn't an endorsement of the president's approach to managing trade relations with China, economists told Newsweek.

"It is certainly a rebuke to the president that both the Fed and the markets — and economists in general — say one of the problems of the economy is all this trade uncertainty, tariff uncertainty, that Trump is causing," David Wessel, Director of the Hutchins Center on Fiscal & Monetary Policy at the Brookings Institute, told Newsweek. "How much does the case for easing rest on worries about the economy that reflect the trade war? I think the short answer is: a lot."

Dean Baker, the co-founder of the Center for Economic and Policy Research, also told Newsweek that the likely Fed rate cuts were also linked to diminishing returns from Trump's tax overhaul plan, which was passed at the end of 2017.

"The biggest part of the story is the end of the boost from the tax cut," Baker explained over email.

In its statement announcing that the federal funds rate would remain at 2.25 percent to 2.5 percent, the Fed noted that job growth has generally been strong in recent months and mentioned the country's low unemployment.

"There's two things that they're really focused on right now. One is the global uncertainty, specifically trade tensions and the global economy," William Delwiche, an investment strategist at financial services company Robert W. Baird & Co., told Newsweek. He noted that the Fed is also focused on the nation's inflation rate, which can help boost economic growth but is below the targeted 2 percent level. Inflation can be boosted by a rate cut, which could also help offset detrimental impacts of the trade war.

"Apparent progress on trade turned to greater uncertainty, and our contacts in business and agriculture report heightened concerns over trade developments," Fed Chairman Powell said in a press conference, reiterating the concerns previously raised by international bodies.

The International Monetary Fund warned in April that trade disputes were exacerbating a slowdown in global economic growth, and the Organization for Economic Cooperation and Development cautioned last month that rising tensions could "further curb strong and sustainable medium-term growth worldwide."

Analysts will be watching the G20 summit later this month, where Trump and Chinese President Xi Jinping will meet to discuss the ongoing tariff dispute.