Inflation report for January to show U.S. price growth remains elevated, posing challenge to Trump
Price growth sped up unexpectedly in January, posing an early challenge to President Donald Trump’s economic agenda.
Inflation for so-called core items, which exclude volatile food and energy prices, climbed 3.3% over the past 12 months, the Bureau of Labor Statistics reported Wednesday, above economists’ expectations of 3.2%. On a monthly basis, the inflation measure rose 0.4%, exceeding forecasts for 0.3%.
Trump regained the White House vowing to lower prices “immediately,” promising voters on the campaign trail that he’d begin doing so “starting on day one.” While the latest report’s survey period does not cover his first weeks in office, the fresh data shows the challenge of slowing price growth could be more difficult than Trump and many economists had hoped.
Egg prices soared more than 15%, the biggest jump since 2015, largely fueled by an outbreak of bird flu. Housing costs, vehicle insurance, airfares and education prices also rose.
Markets tumbled, with the Dow falling some 400 points in pre-market trading. Borrowing costs represented by the 10-year U.S. Treasury bond climbed.
In recent months, the Federal Reserve has been holding interest rates elevated to keep inflation at bay. But just before to the report’s release, Trump wrote on his Truth Social platform: “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!! Lets Rock and Roll, America!!!”
While lowering interest rates would give consumers and businesses more room to spend and invest, it could risk reigniting inflation.
Yet at least one Trump economic adviser has signaled the administration may look to curb overall consumption, which would most likely entail a slowdown in growth and even increase unemployment. Kevin Hassett, director of the National Economic Council, told CNBC on Monday that reducing demand and increasing the labor supply could address the pace of price growth.
Markets have so far ignored those remarks. Instead, many investors have zeroed in on the uncertainty Trump has created through his trade policies. On Monday, he announced he would impose 25% tariffs on all steel and aluminum imports, a move some businesses have warned would trigger price hikes. Last month, Trump announced an additional 10% levy on all goods from China, which promptly rolled out retaliatory tariffs.
“We continue to believe that the Trump Administration’s trade, fiscal and immigration policy agenda would be mildly inflationary,” Bank of America analysts said in a new note to clients.
Federal Reserve Chair Jerome Powell said Tuesday that the economy was “strong overall,” with the central bank having made “significant progress” toward wrestling inflation to its 2% goal over the past two years. He told the Senate that the Fed is well-positioned to adjust interest rates depending on how economic growth evolves but indicated that it’s prepared to keep them higher for longer.
“If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly,” Powell said.
Neil Dutta, head of economic research at the Renaissance Macro consultancy, said in a recent note that uncertainty related to Trump is overrated compared with other looming constraints on growth. Consumers have drawn down their savings and are approaching a natural limit, he said. Meanwhile, public-sector spending is set to slow, not only because of federal policies but also as states face increasing budget constraints.
“Uncertainty is rising while the economy is slowing,” Dutta wrote.
