{"id":484456,"date":"2026-02-22T20:59:11","date_gmt":"2026-02-22T20:59:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/484456\/"},"modified":"2026-02-22T20:59:11","modified_gmt":"2026-02-22T20:59:11","slug":"trumps-trade-war-risks-undermining-his-hopes-of-hefty-us-interest-rate-cuts-graeme-wearden","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/484456\/","title":{"rendered":"Trump\u2019s trade war risks undermining his hopes of hefty US interest rate cuts | Graeme Wearden"},"content":{"rendered":"

Donald Trump and Denis Healey don\u2019t have much in common. One of the greatest prime ministers Britain never had shares little of his famous hinterland<\/a> with what some historians see as one of the worst occupants of the White House<\/a>.<\/p>\n

But Trump would be well advised to remember Healey\u2019s first law of holes \u2013 when you\u2019re in one, stop digging<\/p>\n

Instead, having seen the supreme court reject his sweeping global tariffs<\/a> on Friday, Trump dug his shovel out, announcing a new global tariff of first 10%, then upping it to 15%<\/a>. That may have lifted the president\u2019s mood, after a stinging rebuke from the top judges in the US, but it risks backfiring on his hopes for hefty interest rate cuts this year.<\/p>\n

The trade war, with its exhortation to businesses to make their products in the US if they know what\u2019s good for them, is one of Trump\u2019s signature policies. The logic is to create prosperity and long-term opportunity through bringing more investment and innovation into the US, lifting incomes.<\/p>\n

It also provided lucrative opportunities to tax Americans, with the tariffs rejected by the supreme court estimated to have raked in roughly $110bn (\u00a381bn) from those importing goods from overseas.<\/p>\n

The City consultancy Capital Economics<\/a> has calculated that by raising the global tariff to 15%, Trump has ensured that at least for the next 150 days the effective tariff rate will rise back to 14.5%, slightly above where it had settled before the supreme court stuck down the reciprocal tariffs based on the International Emergency Economic Powers Act.<\/p>\n

That means American importers will still be paying higher prices for goods from overseas, with a knock-on impact on inflation.<\/p>\n

Companies who have stumped up for IEEPA tariffs are agitating for their money back<\/a>. That could be a potential fiscal stimulus, if they get the cash. This adds up to a headache for the US Federal Reserve, and its next leader, the freshly anointed Kevin Warsh<\/a>, and may make it harder to justify a rate cut.<\/p>\n

Trump made it clear what he wants from Warsh last Friday, declaring \u201cinterest rates should come down very substantially\u201d on his watch. However, Warsh will be on a sticky wicket, as the Fed appears split \u2013 the minutes of its last meeting showed that some Fed officials wonder whether rate increases could soon be needed to keep inflation pegged, while others do expect cuts ahead.<\/p>\n

The then UK chancellor, Denis Healey, holds up his budget box in Downing Street in 1974. Donald Trump would do well to remember Healey\u2019s first law of holes. Photograph: P Floyd\/Getty<\/p>\n

A rate rise from the Fed would enrage the ever-flammable Trump. Last month he told the World Economic Forum it was wrong that markets went down when the US reported \u201ca great quarter, a great month, great earnings\u201d because investors expect higher interest rates as a result.<\/p>\n

Now it may feel counterintuitive but this \u201cgood news is bad news\u201d mechanism is vital for healthy financial markets. If faster growth leads to higher demand, and inflationary pressures, a responsible central bank should be diluting the punchbowl (through tighter monetary policy) to prevent the party getting out of hand rather than encouraging the revelry.<\/p>\n

On this point, central bankers\u2019 long-term record is mixed. When he was the Fed chair, Alan Greenspan resisted rate increases during the technology boom of the 1990s<\/a> \u2013 creating an era of cheap money that culminated in the dot-com crash.<\/p>\n

While the Trump White House would like Warsh to model his tenure on Greenspan, the US \u2013 and world \u2013 economy is rather different from three decades ago, even though the Treasury secretary, Scott Bessent, is pushing a 90s-style deregulation drive.<\/p>\n

Dario Perkins of TS Lombard, for example, is not convinced that the Bessent-Warsh combo can recreate the bullish macroeconomic conditions of the 1990s.<\/p>\n

\u201cEven if AI productivity gains can match the hype \u2013 which seems unlikely \u2013 the global inflation backdrop is very different from the 1990s. Tariffs<\/a> and immigration curbs have damaged US supply potential, while \u2018crowding in\u2019 [private sector investment] is mostly just rhetoric,\u201d he warns.<\/p>\n

Last week the Fed\u2019s favoured inflation measure rose, dampening hopes that deflationary effects were building. That is why the markets expect virtually no chance of a Fed rate cut in March, although two cuts are expected by Christmas.<\/p>\n

It is hard to know exactly what the next Fed chair makes of the current economic situation because, unusually, Warsh and Trump did not hold a joint press conference after the president announced his choice in early February.<\/p>\n

In the past, Warsh has indicated that the Fed should dial back its \u201cincantations\u201d rather than keeping its audience on \u201cthe edge of its seats\u201d by trying to vocally provide signals to the markets through forward guidance. A worthy idea but one that risks leaving investors guessing about how the Fed will approach an economy where growth slowed at the end of last year, and relatively few jobs are being created.<\/p>\n

That policy uncertainty risks undermining the US dollar, and the wider markets, in 2026. And with a president digging in to fight his trade war, Warsh may struggle to persuade the rest of the Fed\u2019s interest rate-setting committee to vote for cuts.<\/p>\n

Still, he could always remember another Healey maxim: \u201cWe cannot hope to achieve full employment and sustain it until we have mastered inflation.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Donald Trump and Denis Healey don\u2019t have much in common. One of the greatest prime ministers Britain never…\n","protected":false},"author":2,"featured_media":484457,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[23,3,21,19,22,20,25,24],"class_list":{"0":"post-484456","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-united-states","8":"tag-america","9":"tag-news","10":"tag-united-states","11":"tag-united-states-of-america","12":"tag-unitedstates","13":"tag-unitedstatesofamerica","14":"tag-us","15":"tag-usa"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/484456","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=484456"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/484456\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/484457"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=484456"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=484456"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=484456"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}