Trump blames Biden for hot inflation report, calls for lower interest rates as markets plunge
President Trump Wednesday blamed a hot inflation report on former President Biden and called for lower interest rates even though the Federal Reserve is likely to keep them higher for longer if prices keep going up too fast.
“Biden inflation up!” Trump posted on his social media site after the consumer price index jumped by 0.5% in the month of January and rose to 3% for the previous 12 months.
The president said his plan for widespread tariffs on imported goods should go “hand in hand” with lower rates, even though most economists believe the Fed will maintain a hawkish stance on rates, particularly since the levies are expected to put upward pressure on consumer prices in coming months.
“Interest Rates should be lowered, something which would go hand in hand with upcoming tariffs,” Trump added.
Markets moved sharply lower at the opening bell on Wall Street, although stocks seemed to be avoiding the all-out rout some analysts were expecting.
Wednesday’s report from the Labor Department showed the annual CPI increased from 2.9% in December, continuing a rise off a 3-year low of 2.4% in September.
Monthly inflation has remained stubbornly above the Fed’s 2% annual target for roughly the past six months.
Trump pledged to reduce prices in last year’s campaign, though most economists worry his many proposed tariffs may increase costs for consumers.
The unexpected boost in inflation could dampen some of the enthusiasm on Wall Street that has greeted Trump’s election on the back of promises to reduce regulation and cut taxes.
Grocery prices climbed 0.5% just in January, pushed higher by a 15.2% surge in egg prices, the biggest monthly increase since June of 2015. Egg prices have soared 53% compared with a year ago.
The cost of car insurance continues to rise, and picked up 2% just from December to January. Hotel prices rose 1.7% last month, while the cost of a gallon of gas moved up 1.8%.
The Fed is almost certain to look at the report as another reason not to reduce rates anytime soon.
Fed officials are mostly confident that inflation will eventually turn lower, but they want to see further evidence that it is declining before cutting their key rate any further.
Although it’s not directly tied to other rates, the Fed influences borrowing costs for things like mortgages, auto loans and credit cards, which in turn impact consumer behavior and political approval ratings.
Despite Trump’s remarks, his tariff policy are likely to lift prices and would therefore tend to keep rates higher for longer.