This should be interesting.

The Federal Reserve is about to do exactly the opposite of what President Trump wants it to do. Trump has threatened economic mayhem if he doesn’t get his way. Markets think Trump is bluffing. If they’re wrong, hard times are coming.

The Fed seems very likely to raise short-term interest rates at the policy-setting meeting that concludes September 16. Inflation is too high, and it’s the Fed’s job to get it down. The usual method is raising rates to cool the economy and soften demand. Prediction markets put 80% odds on a rate hike.

Trump wants lower interest rates, not higher rates. On September 4, Trump said on social media that if the Fed doesn’t cut rates, he will “stop trading with countries with which we have a deficit.” That’s roughly 100 countries, including huge trading partners Canada, Mexico and China.

The Fed is now set to call Trump’s bluff. Will he do it?

[It’s time to revise the American Dream]

Probably not, but Trump has gone from verbally browbeating the Fed to threatening tangible damage. Trump obviously doesn’t follow through on all of his threats, but he does act on some of them, incrementally. Trump could ban some imports from some countries, to test the waters. He’s already threatening to ban some Canadian imports, in a separate trade rampage. Import bans are starting to sound like a new Trump fixation.

This is insane, of course. We’re already dealing with the depressing effect of Trump’s tariffs and the energy crisis caused by his war with Iran. Growth has slowed during Trump’s presidential term, and real incomes, adjusted for inflation, are negative. That means the typical worker is falling behind under Trump. Putting new limits on trade would only make this worse.

Here’s how we got here. Inflation has been elevated since the tail end of the Covid pandemic in 2021, hitting a peak of 9% in 2022. The Fed wants inflation of around 2%. We almost got there in the first half of 2025, when inflation got as low as 2.3%.

But then Trump started imposing tariffs. Inflation started inching back up. The Iran war Trump launched in February sent energy prices spiking, and inflation took off again.

The Fed has been waiting to see if the Iran war subsides and energy prices drop. The Iran war keeps not ending. In fact, new developments are making the energy crunch worse.

Market Matters: An Epic Trumpstorm is Coming

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