ARI SHAPIRO, HOST:
President Trump's trade war is casting a shadow over the global economy. The International Monetary Fund issued a gloomy forecast today warning that Trump's tariffs will lead to slower economic growth and a more drawn out battle to slow inflation. The warning echoes comments that Federal Reserve Chairman Jerome Powell made last week. Those comments sparked a furious response from the president, which has also rattled financial markets. NPR's Scott Horsley joins us. Hi, Scott.
SCOTT HORSLEY, BYLINE: Hi, Ari.
SHAPIRO: How big a blow to the global economy is this trade war?
HORSLEY: It's significant. The IMF is not going so far as to project a global recession, but it is forecasting a big hit to global trade and slower economic growth as a result. President Trump's now imposed import taxes on almost everything the U.S. buys from other countries. And the IMF's chief economist, Pierre-Olivier Gourinchas, says the haphazard way these tariffs have been rolled out have only added to their drag on the economy.
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PIERRE-OLIVIER GOURINCHAS: Beyond the abrupt increase in tariffs, the surge in policy uncertainty is a major driver of the economic outlook. If sustained, increase in trade tensions and uncertainty will slow global growth significantly.
HORSLEY: And the IMF has downgraded its growth forecast for the U.S. this year by almost a full percentage point. It's also projecting higher prices so we could see a combination of slow growth and stubborn inflation, which would be a real challenge for the Federal Reserve.
SHAPIRO: Why is that?
HORSLEY: Well, ordinarily, the Fed's answer to slow growth is to cut interest rates, but its answer to fighting inflation is to raise interest rates. So if it's battling both at the same time, it could be sort of caught in this tug-of-war. The IMF stressed that central banks around the world are going to have to remain agile and independent of political pressure. Now, in the U.S., President Trump has been trying to ratchet up the political pressure on the Fed to cut interest rates. Trump's been blasting the central bank in social media posts. In one post, he called Fed Chairman Jerome Powell a major loser.
Now, all that has some investors worried that the president might actually try to fire Powell and replace him with someone more malleable. Speaking to the Economic Club of New York last week, chief economist Mark Zandi of Moody's said firing Powell would be a recipe for a market meltdown.
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MARK ZANDI: I think that would be devastating if he's not able to remain in place until his term is over. I think that would be highly counterproductive and lead to, you know, more turmoil in financial markets and ultimately a much weaker economy.
HORSLEY: And we got a little taste of that yesterday, Ari, when Trump once again went after the Fed chairman, and the stock market just plummeted. Investors, in general, have been hostile to the president's trade war, and they really don't like it when Trump tries to monkey with the Federal Reserve.
SHAPIRO: You know, the president uses social media to comment about all kinds of things. Why is the Fed different? Why shouldn't he comment on the Fed?
HORSLEY: Well, he can comment all he likes. He just can't threaten the Fed chairman's job or otherwise try to bend the central bank to his will. Now, Trump did say this evening that he has no intention of firing Powell. The Fed was designed to be insulated from political pressure so it can do the unpopular thing when necessary - that is, keep interest rates high to bring inflation under control. Powell told the Economic Club of Chicago last week most lawmakers get that.
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JEROME POWELL: Fed independence is very widely understood and supported in Washington, in Congress where it really matters. And, you know, the point is, we can make our decisions, and we will only make our decisions to best serve the American people.
HORSLEY: The case in point is Louisiana Senator John Kennedy, who sits on the Banking Committee, which oversees the Fed. Kennedy is a Republican, but he told NBC's "Meet The Press" over the weekend he doesn't think Trump or any president has the authority to remove the Federal Reserve chairman.
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JOHN KENNEDY: My experience with J. Powell is that he's got tiger blood. He's going to do what he thinks is right. And he's not going to go down in history as the Federal Reserve chairman that allowed the inflation to become wild as a March Hare, and he's going to do what he thinks he's got to do.
HORSLEY: Powell also has the Supreme Court precedent on his side, although the Trump administration's urging the high court to reconsider.
SHAPIRO: Well, after the big sell-off yesterday, the stock market rebounded today. Is that a vote of confidence in Powell?
HORSLEY: It's really a vote of confidence for some relief in the trade war. We heard some encouraging comments from the Treasury secretary, Scott Bessent, about the trade war maybe easing up. Investors liked the sound of that, and the Dow Jones Industrial Average jumped more than a thousand points, or 2 2/3%.
SHAPIRO: NPR's Scott Horsley. Thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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