President Trump looks on in November of 2017 at his announcement of Jerome Pwowell to be the Chairman of the Federal Reserve. This year, he has been pressuring Powell to cut interest rates, belittled him and threatened to fire him. (Photo by Drew Angerer)
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Federal Reserve Chairman Jerome Powell signaled Friday that the first rate cut of 2025 could come next month, squeezed as the Fed is by a weakening job market and rising inflation tied to President Trump’s trade war with the world.
I will leave the job market to others. In the merchandise trade data, I see warning signs that might give a generally cautious Fed chairman and other voting members of the Federal Reserve pause.
In just three months, tariffs as a percentage of total imports quadrupled, topping 10% for the first time in two decades, according to available government data I analyzed, and certainly decades longer.
Since tariffs rates have been largely stable for decades, after decades of gradual decline, that rate of increase – the quadrupling – is almost certainly unprecedented since the 1930 Smoot-Hawley Tariff Act so often cited as a contributing factor to the Great Depression.
In the same three months – April, May and June – the percentage of total imports that entered the United States tariff free dropped below 65% for only the first and second times in just under 20 years, 234 months.
U.S. trade with the world fell for the third consecutive month in June, which is the latest Census Bureau data.
The Fed will make its September decision without data reflecting the impact of tariffs on most of the world’s leading trade partners. The tariff rate on the three largest U.S. importers, Mexico, Canada and China, respectively, are still not resolved. The broad outline of a deal announced with the European Union occurred in late July. Trump has announced tariffs on a wide range of import categories as well that will not be reflected in the data, including semiconductors and pharmaceuticals.
The U.S. trade deficit was a record $692.15 billion through June, a jump of 27.88% when compared to the first six months of last year. While that might not be of paramount concern to the Federal Reserve, and certainly not most economists, Trump might react aggressively in the coming weeks, given that his effort to greatly reduce the trade deficit has actually backfired.
Another troubling number is that the value of U.S. exports earlier this year dipped below 37% of total trade. While that percentage is now slightly above 37%, it was and still is particularly bad news for U.S. exports and their producers and manufacturers. The last time a year ended below 37% was 2006. While a statistical cousin to the trade deficit, it is actually more telling.
There are also a couple of wild cards in play, the first of which will almost certainly play into the Fed’s calculations and the second which might even though it shouldn’t.
First, Trump has relied on the International Economic Powers Act for a great deal of his trade war, declaring the U.S. trade deficit a national emergency. In May, the U.S. Court of International Trade ruled the tariffs were illegal. While that case is on appeal, those tariffs remain in effect. The case will almost certainly make its way to the Supreme Court. How long can the issue remain unresolved?
Which leads to the second wild card. The midterm Congressional elections will determine whether Trump continues with a majority in the House of Representatives. Worrisome inflation tied to tariffs that were the doing of the Republican president, should it materialize, would certainly make holding the slender majority more difficult.
Come September, the Federal Reserve will once again decide whether to lower interest rates. It’s safe to assume the Fed will have a great deal of data on the job market and inflation, particularly on the impact of tariffs, however incomplete.
Source: https://www.forbes.com/sites/kenroberts/2025/08/24/warning-signs-abound-in-trade-data-as-fed-hints-at-lowering-interest-rates/
