Trump's most troublesome issue has returned! Will he argue with Powell again this time?

The unexpected strong growth of the American economy has raised expectations that U.S. interest rates will be higher than European rates next year, but this poses problems for President-elect Trump's trade ambitions. The gap between U.S. and eurozone interest rates is about to widen, which has already pushed up the value of the dollar and may undermine his efforts to boost U.S. exports.

During Trump's first term, similar interest rate gaps often frustrated him and became a trigger for his regular attacks on the Federal Reserve Chairman and his colleagues, so this very organized tariff and negotiation approach with other countries may lead to a more sustained appreciation of the dollar, with monetary policy being only part of the equation.

Next year, the interest rate gap between the two countries could widen to over 2 percentage points, which could further strengthen the dollar, completely contrary to Trump's wishes. The pace of U.S. growth has surpassed pre-pandemic trends, pushing the dollar's valuation to a high level and laying the groundwork for a weaker dollar in the second half of 2025.

Some signs of potential economic changes are emerging, which may indicate that tight monetary policy will continue. Some of Trump's policies may exacerbate this divergence.

In recent years, U.S. productivity growth has significantly accelerated, while most European countries have not experienced this. This may mean they will ultimately stop cutting interest rates at levels higher than before the pandemic.

All of this may have pushed up what economists call the neutral interest rate,

If the strong performance of the U.S. economy poses headwinds for Trump in terms of interest rates and the dollar, then a stronger U.S. economy and a stronger currency can at least help absorb some of the inflationary shocks brought on by tariffs.