U.S. President Donald Trump reiterated his call for the Federal Reserve to implement a significant rate cut in light of the new data released Wednesday on consumer inflation. Trump described the May Consumer Price Index as a “great” number and expressed on Truth Social that the “Fed should lower one full point. Would pay much less interest on debt coming due. So important!!!”
The May CPI indicated a modest rise in inflation compared to a year ago, as many forecasters anticipate that price pressures will intensify due to the president’s substantial increase in import taxes on a broad array of goods. The overall CPI for last month rose by 2.4 percent relative to May 2024, slightly above the April year-over-year reading, while the CPI excluding food and energy costs increased by 2.8 percent over the same time frame.
These CPI figures come ahead of a Fed policy meeting next week, where officials are virtually certain to maintain the central bank’s interest rate target range fixed between 4.25 percent and 4.5 percent. Fed officials have indicated that they are currently in a wait-and-see mode, as the chaotic nature of the Trump administration’s trade policy has complicated predictions about the future of the economy.
Market reactions to CPI data
A diverse array of economists, along with Fed officials, believe that the tariffs will lead to higher inflation while simultaneously hindering growth and suppressing employment. Some of these risks have diminished as Trump has retreated from implementing some of the most severe tariffs.
A recent report from the New York Fed revealed that factory and service firms are passing on a notable amount of tariffs. However, a separate New York Fed report released on Monday indicated that the public has grown less concerned about future inflation, which could mitigate the risk of a sustained rise in price pressures.
Following the release of the CPI data, futures markets have raised the likelihood that the central bank will lower rates at its September meeting.
