Donald Trump Says 'No Inflation!!!,' But This Economist Asks 'Says Who?' As August CPI Rises In Line With Estimates
News Summary
The U.S. economy experienced an acceleration in inflation in August, largely in line with market expectations. This sparked debate after President Donald Trump declared “No Inflation!!!” on social media. Economist Justin Wolfers challenged this claim, pointing to new data showing a 2.9% annual headline inflation rate and a 3.1% rate for core inflation. President Trump called for the Federal Reserve to “lower the RATE, BIG, right now,” describing Fed Chair Jerome Powell as “a total disaster.” Although the inflation numbers are still running above the Fed's 2% target, economists broadly viewed the report as solidifying the case for a Federal Reserve interest rate cut next week. However, some analysts suggest the data argues for a gradual path rather than an aggressive pivot. August's inflation increase was driven largely by the shelter index, which rose 0.4%, along with a 0.5% rise in the food index and a 0.7% increase in the energy index, pushed by a 1.9% jump in gasoline prices. Rising costs for airline fares, used cars, and apparel also contributed to the monthly increase. Following the report, the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ) both rose.
Background
The current year is 2025, and Donald J. Trump was re-elected in November 2024, serving as the incumbent US President. Throughout his terms, he has been consistently critical of the Federal Reserve's monetary policy, particularly on inflation and interest rates, frequently publicly urging the Fed to lower rates. One of the Federal Reserve's primary mandates is to maintain price stability, with a long-term inflation target of 2%. Post-pandemic, the Fed has grappled with inflationary pressures, utilizing interest rate hikes to bring inflation back towards its target. Market expectations regarding when and how the Fed will adjust interest rates, especially regarding cuts, have remained a central focus for investors.
In-Depth AI Insights
How does President Trump's aggressive stance on Fed policy, particularly his 'No Inflation!!!' declaration, impact market perception and Fed independence? President Trump's direct challenges to the Fed create political pressure, potentially influencing market sentiment by suggesting an easier monetary policy is desired from the executive branch. While the Fed officially maintains independence, persistent public criticism can erode trust and create uncertainty regarding future policy autonomy. For investors, this adds a layer of political risk to monetary policy decisions, potentially leading to increased volatility around Fed announcements. Given that August CPI was 'in line with estimates' yet still above the Fed's 2% target, what are the subtle signals for the Fed's September rate cut trajectory? The 'in line with estimates' aspect is critical. It suggests markets had already priced in this level of inflation. The continued rise, even if expected, above the 2% target, particularly in sticky components like shelter, indicates inflation is not fully subdued. This supports a 'gradual path' rather than an 'aggressive pivot,' as noted by Bolvin. The Fed will likely cut to support economic momentum and respond to political pressure but will remain cautious to avoid reigniting inflationary pressures, especially with a strong labor market (as implied by recent 'jobs report' reference). What long-term implications does the persistent shelter inflation have for the broader economy and specific investment sectors? Persistent shelter inflation, as the largest contributing factor, signals ongoing demand-side strength or supply-side constraints in housing. In the long term, this could lead to reduced consumer disposable income as housing costs consume a larger share of budgets, potentially dampening other discretionary spending. For investments, this could mean: - Real Estate Related Sectors: Construction, property development, and rental markets may continue to benefit from pricing power, but affordability issues could eventually cap growth if rates remain elevated. - Retail and Consumer Staples: Face risks of tighter consumer spending, especially on non-essential items. - Banks and Mortgage Lenders: May see mortgage demand slow due to affordability, but higher rates on existing mortgages on their balance sheets could benefit them in the near term. - Interest-Rate Sensitive Industries: Any sector reliant on low borrowing costs could face continued headwinds, even if the Fed begins cutting rates, as the pace might be slower than some market participants hope.