Former President Donald Trump is calling on the Federal Reserve to cut interest rates to go along with his suggested tariffs on foreign imports, claiming that the two-pronged strategy would make the U.S. economy stronger. But his suggestion has a major obstacle as bond yields jump after the release of more-than-expected inflation data.
In a recent statement, Trump stressed that lower interest rates must “go hand in hand” with tariffs to stimulate domestic industries and make American products competitive abroad. “We need lower rates to support our businesses and workers,” Trump said. “Tariffs alone aren’t enough—this combination will bring jobs back to America.”
In spite of Trump’s efforts, the most recent economic figures present a difficult scenario. The Consumer Price Index (CPI) for January 2025 indicated that inflation increased by 3.2% from the previous year, higher than economists’ expectations. Core inflation, which does not include food and energy prices, was still high at 4.1%, indicating ongoing price pressures.
The bond market responded emphatically to the inflation report, and the 10-year Treasury note’s yield reached a post-year high of its level. An increase in bond yields mirrors investor apprehensions that the Federal Reserve can push back the cutting of interest rates until there is evidence that the rate of inflation eases clearly.
“The numbers indicate that inflation is stickier than people had hoped,” said economist Rachel Carter. “That makes it hard for the Fed to make a case for reducing rates in the near term, despite political pressure.”
Trump’s demand for lower interest rates also sparks concerns over the possible effect of tariffs on inflation. Tariffs, while intended to shield domestic industries, can raise the price of foreign goods and thus possibly intensify inflationary pressures. “Pairing tariffs with lower rates could be a tricky balance,” Carter said. “It could benefit some industries but might also result in higher prices for consumers.
The Federal Reserve, led by Chair Jerome Powell, has been holding back from putting a loose monetary policy in place. Powell has continually said that more evidence is needed that inflation is moving towards the Fed’s 2% goal persistently before the Fed would even think about cutting interest rates. “We remain committed to our dual mandate of maximum employment and price stability,” Powell recently said. “Our choices will be based on the data, not politics.”
Trump’s economic proposals are written as he becomes the leading Republican candidate for the 2024 presidential race. His agenda, which includes sweeping tariffs against countries like China and returning a focus to U.S. manufacturing, has drawn acclaim and criticism. His allies assert his policies will protect American jobs, while his opponents state they will lead to higher consumer prices and tense international trade relations.
As the election in 2024 draws near, the fight about tariffs, interest rates, and inflation will continue to be at the center. For the moment, the response of the bond market to recent inflation numbers highlights the dilemma of reconciling economic growth and price stability—a dilemma that Trump’s plan must confront if it picks up speed.
