Here’s a bold statement: Despite President Trump’s claims that inflation is ‘defeated,’ the reality on the ground tells a different story. But here’s where it gets controversial—while the Federal Reserve has cut interest rates and Trump touts falling grocery and mortgage prices, many Americans are still grappling with stubbornly high costs. So, what’s really going on? Let’s dive in.
In recent months, inflation has ticked up in three out of the last four, sitting slightly higher than it was a year ago. Remember when inflation was a hot-button issue during Kamala Harris’s presidential campaign? Well, it’s still here, and it’s sparking debates. At the United Nations General Assembly, Trump declared, ‘Grocery prices are down, mortgage rates are down, and inflation has been defeated.’ Meanwhile, Federal Reserve Chair Jerome Powell acknowledged in August that while inflation has dropped from its post-pandemic highs, it remains ‘somewhat elevated.’ And this is the part most people miss—dismissing inflation while it’s still above the Fed’s 2% target could backfire big time.
For the Trump administration, downplaying inflation is risky. Surveys show that high prices continue to strain household budgets, making this a politically charged issue. The Fed’s gamble is even bigger. They’ve cut interest rates, betting that Trump’s tariffs will only cause a temporary inflation spike. But what if they’re wrong? If inflation worsens or lingers longer than expected, the Fed’s credibility as an inflation fighter could take a hit. Here’s the kicker—that credibility is crucial. If Americans lose faith in the Fed’s ability to control inflation, they might demand higher wages, triggering a wage-price spiral where companies raise prices to offset labor costs, further fueling inflation.
Karen Dynan from the Peterson Institute for International Economics warns that with pandemic-era inflation still fresh in memory and tariffs driving up import costs, confidence in low inflation could erode. ‘If that happens,’ she says, ‘the Fed’s rate cuts will likely be seen as a mistake in hindsight.’ While Trump’s tariffs haven’t spiked inflation as much as feared, consumer prices rose 2.9% in August year-over-year, exceeding the Fed’s target. The September inflation report, delayed by the government shutdown, will likely shed more light—or add more questions.
Tariffs have already pushed up the cost of imported goods like furniture, appliances, and toys. Long-lasting manufactured goods rose nearly 2% in August from a year earlier—a modest gain, but notable after decades of declining costs. Everyday items like groceries are still climbing faster than pre-pandemic levels, with grocery prices up 2.7% in August year-over-year, the largest non-pandemic increase since 2015. Coffee prices? Up a staggering 21% in the past year, thanks to Trump’s 50% import tax on Brazil and climate-induced droughts.
Most Fed officials remain concerned about inflation, yet they cut interest rates, prioritizing unemployment risks over inflation fears. But some economists worry that ongoing tariffs and price hikes by companies could lead to more than a temporary inflation bump. Jason Furman, a Harvard economist and former Obama adviser, calls it ‘a big gamble’ to assume inflation will be transitory. ‘Once upon a time, 3% inflation would have been considered really high,’ he notes.
Trump’s recent tariffs—100% on pharmaceuticals, 50% on kitchen cabinets, and 25% on heavy trucks—aren’t helping. He’s also threatened ‘massive’ tariff increases on Chinese imports. Companies like Campbell Soups and National Tree Company are raising prices to offset these costs. Chris Butler, CEO of National Tree Company, says his artificial Christmas trees, wreaths, and garlands will be 10% more expensive this holiday season. With 45% of his trees made in China, he’s had no choice but to pass costs to consumers. ‘We can’t absorb it all,’ he admits.
Fed policymakers like Jeffrey Schmid acknowledge the risks. Schmid warns that inflation fueled by lost confidence in the central bank is harder to combat than supply-driven spikes. Yet, some Fed officials, like Trump appointee Stephen Miran, argue that slowing rental costs and reduced immigration will cool inflation. ‘I’m more sanguine about the inflation outlook,’ Miran says.
Here’s the burning question—is the Fed’s optimism justified, or are they underestimating the long-term impact of tariffs and price hikes? What do you think? Are we on the brink of taming inflation, or is this just the calm before the storm? Let’s hear your thoughts in the comments!
