Trump claims near-zero inflation as Fed eyes 25 bps rate cut in September

U.S. President Donald Trump has declared that inflation has “dropped to the perfect level” and described the current situation as “almost no inflation,” according to reports from multiple outlets [1]. This statement comes amid recent government data showing that inflation has eased from its earlier peaks, though it remains above the Federal Reserve’s 2% target [2]. The July core CPI—excluding food and energy—rose 0.3% from the previous month and 3.1% year-over-year, slightly above the 3% forecast [1].

Trump’s remarks suggest a growing belief within the administration that inflation is no longer a pressing issue. A senior administration official attributed the relatively low inflation numbers to the lack of noticeable impact from the president’s sweeping tariff measures, which had been introduced amid concerns of potential inflationary surges [1]. According to the official, businesses are absorbing the cost of these tariffs rather than passing them on to consumers, supported by surveys indicating that small businesses are reluctant to raise prices in the face of weak demand [1].

The inflation data has also bolstered market expectations of a 25 basis point rate cut by the Federal Reserve in September, with further easing anticipated by the end of the year. As of early August, Fed Funds Futures were pricing in a 26 basis point reduction at the September FOMC meeting, with a total of 63 basis points expected by year-end [1]. Fed officials have increasingly signaled a dovish stance, with a number of FOMC members expressing support for accommodative policy amid concerns over inflation and a strong labor market [1].

Meanwhile, Trump has intensified his pressure on the Federal Reserve, calling for more aggressive rate cuts and threatening legal action against Fed Chair Jerome Powell over alleged mismanagement of central bank renovations [1]. However, analysts caution that the Fed faces a high bar for large rate cuts, as inflation remains above target and economic growth remains robust [3]. Fed Governor Thomas Barkin has emphasized the need for a balanced approach, noting that both inflation and labor market risks remain uncertain [1].

In the foreign exchange market, the U.S. dollar has weakened following the inflation data and expectations of Fed easing. The EUR/USD pair has seen a sustained uptrend, with analysts forecasting it could reach 1.18 and potentially 1.23 if the Fed continues its dovish pivot [1]. The decline in net short USD positions—falling to $7 billion as of mid-August from a peak of $18.6 billion in early July—has also supported the dollar’s downward trend [1].

Despite Trump’s assertion that inflation is nearly eliminated, the latest data and expert assessments suggest the Fed must proceed cautiously. Core inflation has shown some moderation, but it remains above the central bank’s target. The administration’s trade policies have not yet triggered the anticipated price surges, and the Fed will continue to monitor incoming data before determining its next moves [1]. As the Jackson Hole symposium approaches at the end of August, the central bank will assess whether the economic outlook supports further easing or signals renewed inflationary pressures [1].

Source: [1] Market Pulse, [2] Investors.com, [3] The New York Times