Trump calls for lower interest rates minutes before government report shows hot inflation

Investing.com -- President Donald Trump expressed his desire for lower interest rates on Wednesday, a move that aligns with his second-term economic agenda, which includes increased tariffs and expanded tax breaks. The President shared his thoughts on social media, stating that lower interest rates would complement the upcoming tariffs.

Trump’s statement came shortly before the release of consumer price data. The U.S. consumer price index (CPI) saw a larger than expected increase in January, according to the Bureau of Labor Statistics (BLS). The CPI rose by 0.5% last month, following a 0.4% increase in December. This increase supports the Federal Reserve’s stance of not rushing to cut interest rates due to growing economic uncertainty.

The BLS also reported that the CPI increased 3.0% in the 12 months through January, compared to a 2.9% rise in December. This rise in the CPI may be partially due to businesses increasing prices at the start of the year, potentially in anticipation of higher tariffs on imported goods.

Earlier this month, President Trump suspended a 25% tariff on goods from Canada and Mexico until March, while a 10% additional tariff on Chinese goods was implemented. Economists predict these tariffs, once enforced, will contribute to inflation.

Federal Reserve Chair Jerome Powell noted to lawmakers on Tuesday that inflation has been uneven recently, but remains above the central bank’s 2% target. The likelihood of a rate cut this year is decreasing due to the economic uncertainty surrounding the Trump administration’s trade, immigration, and fiscal policies.

Consumer inflation expectations reached a 15-month high in early February, according to a University of Michigan survey. This surge suggests households believe it may be too late to avoid the negative impact of tariff policy.

The Federal Reserve left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range in January, after reducing it by 100 basis points since September. The policy rate was increased by 5.25 percentage points in 2022 and 2023 to control inflation.

Excluding food and energy components, the core CPI rose 0.4% in January, compared to a 0.2% increase in December. Over the 12 months through January, the core CPI increased 3.3%, following a 3.2% rise in December.

Trump’s policy proposals, including increased tariffs on imports from China and steel and aluminum, have added uncertainty to the U.S. economic outlook. He has also delayed tariffs against Canada and Mexico and plans to introduce reciprocal trade levies on countries this week. Economists warn these measures may increase inflation pressure, a concern for voters that contributed to Trump’s return to the White House.

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