Biden Inflation Impact on Interest Rates and Trump's Tariffs
Headline Inflation Surprises
Data released by the Bureau of Labor Statistics showed a 3% year-over-year increase in the Consumer Price Index (CPI) for January, higher than forecasts and December's 2.9% gain.
Trump's Reaction: "Biden Inflation"
President Donald Trump dismissed the report as "Biden inflation" and called for lower interest rates on Truth Social. He also advocated for tariffs, tweeting "Interest Rates should be lowered... Lets Rock and Roll, America!!!"
Federal Reserve's Perspective
Fed Chair Jerome Powell had previously indicated a cautious approach to raising rates. However, the higher inflation could reduce the likelihood of lower rates, especially the Fed's benchmark federal funds rate.
Trump's Tariffs and Musk's Influence
Trump's call for tariffs follows his announcement of 25% tariffs on steel and aluminum. He also met with Elon Musk to discuss cutting the federal deficit through the Department of Government Efficiency (DOGE).
Musk predicted that cuts and regulations trimming would lead to zero inflation and lower interest rates. He envisions a scenario where grocery prices remain stable year-over-year and debt payments decline.
Market Impact
Markets already had low expectations for a Fed rate cut before the inflation news, and these expectations further declined after Wednesday's data.