Trump's latest threat to the US Fed is a stunner: can monetary and trade policy be taken so lightly?

It is one of the biggest ironies of life that two of the most important jobs in the world—that of a parent and of the president of the world's most powerful country—do not call for prior training. In both cases, the hope is that one will learn on the job. In both, the stakes are high; as is the cost of failure. But there is one key difference. The damage one can do as a knowledge-proof parent is largely limited to one's children. In the case of White House occupants, however, to rephrase Shakespeare a bit, the harm that men do lives after them, while the good is oft interred with their bones. What history makes of the legacy of the 47th President of the United States of America cannot be foretold, but our hearts must go out to future scholars trying to puzzle out his policy intent, proclamations and outcomes. Even by the Donald Trump presidency's own record, an outlier among outliers, the US president's latest call for the Federal Reserve to cut its policy rate, or else—particularly the 'or else' part—has been a stunner. In an all-caps post on his Truth Social platform, Trump said: 'Lower the rate or I'll stop trading with countries with which we have a deficit.' Paradoxically, this threat was made after surprise data showed that US employers had added 162,000 non-farm jobs in August, more than seven times that month's payroll gain in 2025. Even nodding familiarity with Economics 101 would lead anyone to read that as a sign of a strong economy, not a weak one in need of the monetary stimulus of cheaper credit. Especially with US inflation having run above the Fed's target rate of 2% for more than half a decade. But Trump's perspective differs. The strength of the US economy, in his view, means it can afford to reduce rates right away. Theory must not get in the way of 'True Economic Greatness,' he posted, and since growth 'does not cause inflation' (as he asserted in all caps), the Fed must cut borrowing costs to the 'lowest rate' (in caps) of 'any country in the World.' Apart from the fact that interest-rate policy is beyond the purview of the political leadership and must be set by an independent central bank, Trump's latest gambit is of a piece with his past efforts to push the Fed into untimely and risky rate cuts. The reality is that cheaper credit is likely to make the US economy overheat, stoke inflation further and eventually slow economic growth down. That AI, robots, etc, will enable a positive outcome is a fantasy best not tested. The usual trade-off of price stability versus payroll growth still holds, even if technology alters the details of its dynamics. As for trade, it is true that America runs a huge deficit with the world, with Vietnam, Mexico, Taiwan, China, Thailand, South Korea, Germany and India making up the bulk of it. But this only reflects US consumption being way ahead of its savings. America lives well beyond its means, with the dollars earned by others invested or loaned right back. Global demand for US federal debt assets keeps a lid on its cost of capital, for which it must largely thank the dollar's unique privilege as the world's reserve currency under the post-Bretton Woods framework of international payments. For the rest of the world to be content being paid in dollars, though, America must ensure that its dollar does not get debased. In its own interest, it must let the Fed do its job. To a business manager, a trade deficit may look like a blotch of red ink, a glaring loss. But that's not how trade and capital flows work.