From Yahoo Finance: 2025-04-14 16:43:00

President Trump is facing a dilemma – high tariffs or low interest rates, but not both. His tariff policies have led to market consequences, impacting inflation and economic growth. Investors would have enjoyed a favorable economy without his tariffs, with inflation dropping and growth holding steady.

Inflation has decreased from 2.8% to 2.4%, close to the Federal Reserve’s target of 2%, before the tariff turmoil. Declining inflation typically leads to lower interest rates, giving the Fed more flexibility and reducing bond yields. However, rates have been rising due to Trump’s tariff actions, impacting the economy.

Higher tariffs and lower rates are incompatible in a growing economy. Trump’s choices are to stick with tariffs and accept higher rates, repeal some tariffs to lower rates, or attempt unconventional methods to lower rates. Markets are concerned about potential adverse consequences if Trump tries to force rates down through unorthodox means.

One way Trump could potentially lower long-term rates is by issuing fewer long-range bonds, affecting supply and demand in the bond market. Another risky scenario would involve firing Fed Chair Jerome Powell and installing a more rate-cutting friendly chair, possibly increasing inflation fears. Trump’s actions may inadvertently lead to a recession, which could bring rates down.

Trump’s circuitous route to lower rates, due to his tariff policies, may not achieve the desired results. A recession could potentially bring rates down, but it comes with economic challenges. Trump’s tariff turmoil has complicated the path to lower rates, which could have been more straightforward without his trade war.

Read more: Trump is wrecking his own economic agenda