Kevin Hassett, the chair of the Council of Economic Advisers, has signaled that he does not anticipate interest rates dropping to zero as a result of President Donald Trump’s proposed trade war. The comments came in response to threats from the president, who has suggested that tariffs could lead to such extreme monetary policy adjustments.
Speaking to reporters, Hassett played down the likelihood of the federal funds rate reaching zero, indicating that the economic outlook remains distinct from the more aggressive scenarios sometimes floated during trade disputes. His remarks suggest a more moderate view within the administration regarding the potential macroeconomic impact of renewed trade tensions.
The exchange highlights a divergence between the administration’s tough-on-trade rhetoric and the economic forecasting of its top financial advisors, who appear to expect more conventional market and policy responses rather than radical shifts like zero-interest-rate environments.
This divergence between Trump’s bluster and Hassett’s calm is classic. I just hope the Fed isn’t caught off guard later.
Is anyone else confused? Why is the tariff threat being treated as mere rhetoric if it could reshape monetary policy?
Hassett seems way too confident. History shows trade wars cause real shock to bond markets and rates.