Just before the monthly consumer price report was released on Wednesday, President Donald Trump sought low interest rates on his post on his true social platform.
“We need to lower our interest rates. This is something we’ll go hand in hand with future tariffs!!! Rock and Roll, America, America!!!” he wrote.
When the report was released a few minutes later, investors indicated they had other plans.
Stocks fell while borrowing costs were rising as the pace of inflation reached the above forecasts in January. These moves reflect expectations that the Federal Reserve, which helps set interest rates across the economy, will maintain these rates for longer.
In a note to our clients, Bill Adams, Chief Economist at Comerica Bank, said: “It will strengthen the Fed’s trends at least slowly in 2025, and perhaps even reducing the end rate.”
RSM US chief economist Joseph Bruseras added that he hopes the Fed will cut interest rates only once, not until December.
“If you get that,” Bruseras said.
Following the inflation report, market bets imply that the Fed’s probability of holding current interest rate levels by 2025 will increase from 20% to 29%. Bank of America Global Research suggested on Wednesday that the Fed could even raise interest rates. This remains “impossible” but is a “unthinkable now.”
By keeping borrowing fees higher, the Fed works to counteract inflation by making it more expensive for consumers and businesses to borrow and invest. The idea is that if a company tries to raise prices to get more profits, it meets more resistance from its customers.
For consumers, the Fed is reluctant to cut interest rates, which means continuing high credit card fees, car loan costs and mortgage fees that are indirectly linked to the rates set by the Fed.
Federal Reserve Chairman Jerome Powell testified Wednesday before U.S. House members, telling lawmakers that inflation “still remains somewhat rising.”
Voters have elected Trump to find a way to curb the hotter inflation that occurred under President Joe Biden. However, the president also sought to impose tariffs to draw concessions and increase income on beliefs that many economists argue — and that the American yawning trade deficit is a sign of weakness .
However, these tariffs risk exacerbating the inflation that Trump has promised to tame.
In general, tariffs risk increasing prices even further as importers pass costs to consumers. And despite the delay in tariffs on Mexico and Canada, their very threat could raise some prices in anticipation of greater costs, even before Trump takes office. Trump himself acknowledged that tariffs could cause some sort of “pain” to the economy.
The risk that prices could rise as a result of the White House trade war is a policy dilemma for the Fed. Higher prices could force the Fed to keep rates higher or even raise interest rates, but uncertainty, as did the central bank during the first Trump administration’s trade war, There is a possibility that the Fed will actually tilt towards a reduction rate.
“For tariffs, or partly for tariffs, we need to do something with policy rates, but until we know what policies are actually enacted, it’s what The economy could evolve so that you can know if there is. Powell told the House Financial Services Committee, but repeatedly refused to comment on whether the proposed tariffs are good or bad for the economy. did.
One Trump administration official hinted this week how the president attempts to square its seemingly contradictory objectives regarding the impact of tariffs. Appearing on CNBC, National Economic Council director Kevin Hassett said the president is trying to deal with rising prices by reducing aggregate demand and increasing labor supply.
In other words, the president may be aiming to weaken the job market.
There are also indications that the Trump administration is dialing expectations about how much progress it can make in lowering prices.
“Rome was not built in one day,” Vice President JD Vance told CBS News last month, adding that it would “take a little while” as grocery prices would drop.
“Inflation was published in a society where Biden inflation is True,” Trump said, “just after the release of his inflation report in January. However, the Bureau of Labor Statistics collects data on prices throughout the month. In other words, the report covers almost two weeks of Trump’s return to presidency.
