Trump's Inflation Pledge Faces Headwinds as Hotter CPI Rattles Markets
President Trump's promise to curb inflation has become more challenging after the January Consumer Price Index (CPI) exceeded expectations. The report triggered market volatility, pressuring stocks and boosting bond yields as investors lowered their hopes for interest rate cuts.
Federal Reserve on "Collision Course" with Trump
Veteran economist Nouriel Roubini warns that even delaying rate cuts could put President Trump on a collision course with the Federal Reserve. Fed Chair Jerome Powell has repeatedly indicated no rush to cut rates, despite Trump's public calls for them.
Trump's Tariff Agenda Complicates Inflation Outlook
Trump's proposed tariffs risk exacerbating inflationary pressures, according to economists. Moody's Analytics estimates that tariffs on Canada, Mexico, and China could increase consumer price inflation by 0.5% and reduce real GDP by 0.6% within a year.
Tariffs Fuel Inflation and Economic Growth Concerns
Mark Zandi, chief economist at Moody's Analytics, warns that tariffs will raise inflation, interest rates, and curtail economic growth. Wall Street analysts share these concerns, with David Kostin of Goldman Sachs estimating that a 5% increase in US tariff rates could reduce 2025 S&P 500 earnings by 1% to 2%.
Market Discipline and Bond Vigilantes Keep Bad Policy in Check
Despite concerns, Roubini believes the probability of "bad policy" implementation is low. He identifies four "guardrails" to prevent this: market discipline, Fed independence, strong economic advisors, and bond vigilantes, with bond vigilantes potentially serving as the most powerful constraint on Trump.