Will Fed Give Up the Inflation Fight?

 Financial FAQs

 “Consumers continue to express frustration over the persistence of high prices, with 44% spontaneously mentioning that high prices are eroding their personal finances, the highest reading in a year.” University of Michigan Sentiment Survey

FREDcpi

Federal Reserve Chair Jerome Powell said at his most recent press conference (after the Fed’s October FOMC meet) that they were still committed to achieving a 2 percent inflation target.

Why ? Because inflation is still too high and Chair Powell, et. al., see too much uncertainty ahead. That’s no surprise given the government shutdown, and continuing tariff wars.

The last period of moderate inflation was the decade after the Great Recession, as seen in the Fred Consumer Price Index chart (large gray bar is GR)—that ended with the COVID-19 pandemic. It was during the Obama administration when regulations were created that required banks to play by the rules and hold more capital.

But what if the rules are changed again that allow higher inflation and fewer regulations that the Trump administration says it wants?

The moderate inflation ended because of the COVID-19 pandemic when massive liquidity was injected into the economy during the first Trump and Biden administrations to speed up the recovery. Inflation jumped to a high of 9 percent before declining until the retaliatory tariffs, rising again to its current 3%.

So now there is growing doubt that the Fed can maintain the 2 percent inflation target, since the newest members of the Fed Governors that vote on interest rates were Trump-appointed. And a Trump pick will become the new Federal Reserve Chair next year.

This is while President Trump has been calling for lower interest rates, which with higher tariffs would lead to higher inflation.

Trump claims that won’t happen even though he has raised tariffs to Taft-Hartley, Great Depression levels (thus raising import prices), has raised federal debt because of his Big Beautiful Tax Bill, and is loosening financial regulations that limit market speculation (e.g., in Bitcoin).

Add all this to the chaos generated by a White House that almost daily revises its decisions (e.g., TACO Trump), which makes it almost impossible to predict what will happen next.

Trump won’t admit he is responsible for the rise in consumer prices since April 2. But it happened at the same time that he announced his retaliatory tariffs on the rest of the world.

There is pushback from the bond market, which doesn’t like inflation because it reduces the value of bonds. We can see that certain financial markets are already reacting to the inflation uptick with higher interest rates, which is making consumers increasingly unhappy, even with the second -0.25 percent rate cut in October.

This translates into higher mortgage rates as well, which won’t make the housing industry happy either. So, who will lobby against more easy money to prevent another Great Recession, which happened the last time Republicans pushed through such an easy money agenda by blatantly ignoring financial regulations?

Though no one was punished for it, and American taxpayers paid for the bailout of our financial system. Will that happen again, now that Republicans are once again in charge?

Consumers don’t like higher prices, period, and there is another election in 2026. They might even remember the eight million job losses that followed what was the worst economic downturn since the Great Depression.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen