Evan Ramstad: Fed Must Cut Rates to Rescue Trump-Damaged Economy

The Federal Reserve’s Dilemma and the Need for Bold Action

The Federal Reserve is expected to resume lowering its key interest rate, but most analysts believe the move will be modest—only a quarter of a percentage point. However, I argue that the central bank should take bolder steps and cut rates by a half point. This stance may seem similar to President Donald Trump's rhetoric, where he and his supporters have pushed for lower interest rates, often criticizing Fed leaders and undermining the institution’s independence. But this isn’t about aligning with Trump; it’s about addressing the economic damage caused by his policies.

Trump’s approach to trade and immigration has created significant uncertainty across the economy. Despite stock market indices hitting all-time highs, business leaders, consumers, and investors are wary. The result? America’s economic growth has slowed dramatically this year, with rising unemployment, frozen hiring, and a slowdown in consumer spending. The housing market is also struggling, and these challenges are impacting every corner of the country.

In Minnesota, the economic growth rate is slower than the national average, but the state’s unemployment rate remains lower. New data on state unemployment will be released this Thursday, and quarterly economic growth figures are expected at the end of the month. These reports will provide a clearer picture of how the state is faring amid broader national challenges.

A Troubled Agricultural Sector

One of the most affected sectors in Minnesota is farming and food production, which contributes roughly one-sixth of the state’s economic output. This summer has been unusually favorable for crops, with excellent weather leading to high yields for corn and soybeans. However, low prices persist because the market has already anticipated these bumper harvests.

The bigger issue lies in international trade. One-fifth of U.S. agricultural production is exported, and Trump’s aggressive tariff policies have disrupted longstanding trade agreements with many of America’s major trading partners. This has left farmers in a precarious position, especially as they face uncertain markets.

At Farmfest in Morgan, Minn., South Dakota’s Luke Lindberg, who had just taken on a new role in the Department of Agriculture, was questioned by farmers about whether the administration would secure new trade deals before the harvest season. Even Zippy Duvall, president of the Farm Bureau, warned farmers that without trade deals, managing their finances could become extremely difficult.

Despite Trump’s criticism of trade deficits, his trade wars have contributed to them, particularly in agriculture. For decades, the U.S. maintained a surplus in agricultural trade, but that changed during the first Trump administration. While there was a return to surplus in 2020 and 2021, the deficit has surged again. In 2023, the U.S. imported $32 billion more in food than it exported, and through August this year, that gap has grown to $47 billion.

Chinese buyers, who had previously ordered 12 million tons of American soybeans by early September, have placed zero orders this year. This has led to calls for a bailout from soybean farmers in Minnesota, highlighting the severity of the situation.

The Federal Reserve’s Role in Economic Stability

Traditionally, the Federal Reserve balances its dual mandate: keeping inflation around 2% while maximizing employment. However, this year has been complicated by the potential for tariffs to drive up inflation, which hasn’t yet returned to pre-pandemic levels. At the same time, businesses are hesitant to expand or hire due to the uncertainty created by Trump’s policies.

While the Trump administration and Congress extended the 2017 tax cuts, this was expected. What wasn’t anticipated was the chaotic approach to trade and immigration. The Fed could help counteract this instability by taking bold action, even if it appears to align with Trump’s agenda.

A half-point interest rate cut is a strong step, but it may not be enough to prevent a recession in 2026. The long-term effects of Trump’s policies are also concerning. The Congressional Budget Office recently revised its population forecast, predicting that deaths will exceed births in 2031—two years earlier than previously estimated. This shift is largely due to a sharp decline in net immigration, which has dropped from 2 million to 400,000 this year.

Minnesota and other northern states have already seen population leveling and decline, but Trump’s policies are accelerating this trend nationwide. The consequences of these decisions will be felt for generations, making it more urgent than ever for the Fed to act decisively.