Price Growth Surprises, Posing Challenge for Trump's Economic Agenda
The Bureau of Labor Statistics reported that inflation for core items, excluding volatile food and energy prices, rose to 3.3% over the past 12 months, exceeding estimates of 3.2%. Monthly inflation rose 0.4%, surpassing forecasts.
President Trump, who pledged to lower prices, attributed the inflation to his predecessor. Egg prices surged 15% due to bird flu, while housing, vehicle insurance, and airfares also increased. However, discounts on appliances and apparel provided some relief.
Markets reacted negatively, with the Dow dropping 400 points at the open. Borrowing costs on 10-year Treasury bonds also rose.
Trump has suggested lowering interest rates, which could boost spending but potentially reignite inflation. His economic adviser, Kevin Hassett, proposed curbing consumption to address price growth, potentially slowing growth and increasing unemployment.
Market focus remains on the uncertainty surrounding Trump's trade policies, with tariffs on steel, aluminum, and Chinese goods raising concerns about price hikes.
Federal Reserve Chair Jerome Powell expressed concerns about the economy's strength despite progress towards the 2% inflation goal. He indicated the Fed's readiness to adjust interest rates or ease policy as needed.
Neil Dutta of Renaissance Macro highlights other constraints on growth beyond policy uncertainty, including declining consumer savings and falling public-sector spending.