Inflation Heated Up in January, Freezing the Fed
Consumer prices rose 3%, as fight against inflation continues to face headwinds
By Jeanne Whalen and Nick Timiraos, The Wall Street Journal, Updated Feb. 12, 2025
…Trump said in a social-media post Wednesday, just before the data release, that interest rates should be lowered. Some of Trump’s economic advisers have recently struck a different tone, arguing that the Fed needs to get inflation fully under control before lowering rates…
After three consecutive rate cuts late last year, the Fed last month hit the pause button on further cuts, entering a new wait-and-see phase.
“We’re in a pretty good place with this economy. We want to make more progress on inflation. And we think our policy rate is in a good place, and we don’t see any reason to be in a hurry to reduce it further,” Federal Reserve Chair Jerome Powell told members of the Senate Banking Committee… [end quote]
I’ll bet that President Trump wishes that he could send DOGE into the Fed to can all the Fed governors and cut the fed funds rate to zero. Fortunately, Jerome Powell’s position is protected by law and he would fight to keep it. Of course, DOGE has violated Congressional laws right and left, including at Treasury. But the Fed is a different story … I hope.
I expect inflation to rise because the amount consumers can spend on goods and services is rising rapidly. Also, transfer payments are rising along with the federal deficit. The Federal Deficit [-] as Percent of Gross Domestic Product is currently -6.3% and getting worse.
Trump’s policies of expelling immigrant labor and imposing tariffs will inevitably worsen inflation. Also, the bird flu is raising the price of eggs which impacts the CPI (though not the core CPI).
If Trump and Musk succeed in disrupting the Fed – that would be a black swan event that would cause a financial crisis. Even with the Fed functioning smoothly the stock and bond markets will fight downdrafts as inflation refuses to subside (or, more likely, gets worse).
The stock market tends to have a hissy fit if the Fed refuses to cut the fed funds rate when the speculators have bet on it. The options market already has cut back on expectations.
My money is on rising inflation. That’s why I buy TIPS instead of Treasuries. There is no reason to cut the fed funds rate with the current situation. If inflation rises the Fed may raise later this year.
Wendy