President Trump's Inflation Promise Faces Challenges Amid Rising CPI
President Trump's promise to curb inflation has become more difficult following the release of the January Consumer Price Index (CPI), which exceeded expectations. The report has rattled markets, with stocks under pressure and bond yields spiking as investors lower expectations for interest rate cuts.
Federal Reserve Collision Course
Veteran economist Nouriel Roubini warns that even a delayed rate cut could put Trump on a "collision course" with the Federal Reserve. Jerome Powell, the Fed Chair, has indicated he is in no rush to cut rates, despite Trump's repeated urging.
Impact of Tariffs on Inflation
Roubini and Mark Zandi, chief economist at Moody's Analytics, express concerns that Trump's proposed tariffs could backfire by adding to inflationary pressures. They argue that tariffs on Canada, Mexico, and China will lead to higher consumer prices and slower economic growth.
Market Impact
The uncertainty surrounding Trump's tariff plans is creating risk for the stock market. David Kostin of Goldman Sachs projects that a 5% increase in US tariffs would reduce 2025 S&P 500 earnings estimates by 1-2%.
Guardrails Against Bad Policies
Roubini identifies four "guardrails" that could prevent Trump's policies from becoming more damaging: market discipline, Fed independence, strong economic advisors, and bond vigilantes. He believes bond investors will serve as a significant check on Trump's policies if they negatively impact growth and inflation.