Tariffs and Interest Rates: Prices up, worsen if Trump forces interest rate drop
President wants Fed Chair to drop interest rates now. If he doesn’t follow Fed advice, economy will get worse.
When Donald Trump added tariffs (extra taxes) on goods from countries like China, he claimed it would protect American workers and bring jobs back home. But in real life, in places like Illinois and Hawaii, it ended up making everything more expensive for everyone.
Take a company in Rockford, Illinois that builds washing machines.
Before the tariffs, they bought steel and electronics from overseas at low cost. After the tariffs, those parts became more expensive. The company had no choice but to raise prices.
Customers across Illinois paid more not just for appliances, but for groceries, clothing, and anything made with imported goods.
Now look at a small shop in Honolulu that imports kitchenware and electronics from Japan and South Korea.
Those goods were already expensive to bring in because of the Jones Act (a federal law that forces all shipping between U.S. ports to be done on U.S.-built, U.S.-flagged, and U.S.-crewed ships). That law drives up shipping prices, which means higher prices in Hawaiian stores.
When Trump’s tariffs raised the cost of the goods themselves, the Honolulu business got hit from both sides: expensive products and expensive shipping.
Families in Hawaii, already dealing with one of the highest costs of living in the U.S., felt the squeeze even more.
All this led to inflation.
Not because people were buying more, but because basic goods just cost more to produce and ship.
And when inflation rises, the Federal Reserve steps in.
The Fed’s job is to keep prices under control, and its main tool is raising interest rates, which makes loans, credit cards, and mortgages more expensive.
Raising interest rates slows down spending to cool off the economy and bring prices down.
But now, Trump is demanding that Fed Chair Jerome Powell lower interest rates immediately, no matter what the economic data says.
Read: https://www.nytimes.com/2025/07/16/us/politics/trump-powell-firing-letter.html
That’s a dangerous move.
If the Fed cuts rates too soon, inflation could rise again! This is especially with tariffs still in place and supply chains still fragile.
It’s like turning off the air conditioner in the middle of a heatwave just because someone says it “feels fine.”
The Fed is supposed to act independently, based on long-term economic health, not on a president’s political needs or campaign goals.
If Trump pressures Powell to drop interest rates before it’s safe, it could lead to even worse inflation down the road.
That would mean even higher prices at the store, and eventually, the Fed would have to hike rates back up! Harder and faster than before.
That could throw the economy into a deeper slowdown or even a recession.
So in the end, Trump’s policies, from tariffs to his pressure on the Fed, don’t make life easier for working families.
They make things worse.
In Rockford and in Honolulu, in Chicago and in Hilo, it’s regular people paying the price.
My neighbor, a widow, just asked me to explain tariffs. Since she owned a business with her husband, my simple question to her was "what did you do when the prices of your merchandise went up". Of course, she raised prices. I tried to look astonished and replied "you mean you did not reduce your profit margin". She then looked astonished and I said, "now you understand tariffs.