Trump Also Losing the Inflation War

Popular Economics Weekly

“Real gross domestic product (GDP) increased at an annual rate of 3.4 percent in the third quarter of 2026 (July, August, and September), according to the advance estimate released today by the U.S. Bureau of Economic Analysis (BEA). In the second quarter, real GDP increased 2.2 percent”.

BEA.gov

The sudden boost in GDP growth makes it obvious that President Trump is losing the war on inflation which he promised to win on Day One, as well as Iran. And because he can’t admit he lost, he will prolong both wars—though he can’t win either one.

The boost in the preliminary estimate of third quarter real economic growth was predicted with the $trillions being spent on AI. But it also boosted inflation.

The inflation measure formally known as the personal consumption expenditures index. climbed to 3.6% from 3.4% in the prior month, pushing inflation further away from the Fed’s 2% target.

And the Fed has elected not to raise interest rates until when, December? Big mistake, in my opinion. It will be after the midterm election when Trump has already announced he wants to continue to bomb Iran, thus creating even more energy shortages.

He directly challenged the Fed to act and they blinked, deciding not to raise their rates in October with a 10-2 decision.

And Trump is now trumpeting how much richer he and his fossil fuel buddies have become over the higher energy prices! And he’s now taunting them because of it.

Why didn’t the Fed begin the inflation fight sooner, before the war creates even more energy shortages and drives consumer prices higher, which will further exhaust consumers’ personal savings as well?

The above graph shows consumer spending and investments are still driving GDP growth while imports and exports are contracting. But how much longer can consumers continue to support such growth and avoid the inevitable; a recession?

So instead of TACO Trump, it’s now the FACO Fed (FED Always Chickens Out) that didn’t challenge Trump’s inflationary moves, which tells investors and consumers once again that it is Trump and his compliant Republicans that are almost solely responsible for the higher gas and diesel prices that are crushing households’ standard of living.

The PCE report also says that Disposable Personal Income (i.e., after taxes) is up just 0.2 percent while personal expenditure rose 0.5 percent in October. Consumers are now spending twice what they earn.

This is at the same time as the draconian cuts in social services kick in from Trump’s Big Beautiful tax cut bill that will take effect after the midterms.

Former Labor Secretary Robert Reich has been adding up the damage to ordinary consumers. Food Stamp assistance is being cut by $187B; $1.1B from Medicaid and Obamacare spending; that is knocking some 11 million off the Obamacare insurance rolls.

And those cuts are being used to fund an additional $191Billion for ICE operations. Something must give. A whopping 64 percent of disposable income is now being spent on gasoline, other energy products and transportation, while just 18 percent is left for housing and utilities.

So there is no question what this means. It’s happening while corporations are making a cynical bet that their investments in AI will enable them to replace employees with more efficient, less costly bots and artificial intelligence software.

Nobel laureate economist Daron Acemoglu has said in an interview with Fareed Zakaria that much of A.I. corporate investment is designed to replace people.

So I ask again, why is the Fed not acting sooner to slow inflation when the higher tariffs and Iran war behind the inflation surge have no end in sight?

Economists now agree the Fed acted too late in 2022 after the COVID-19 pandemic, which resulted in a 9 percent inflation peak. Would not it have been better to raise their main inflation fighter, interest rates, sooner, to maintain credibility?

So, I repeat, will we ever see a Fed 2% inflation target rate again and the FACO Fed give consumers some relief before it’s too late?

Harlan Green © 2026

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