Trump says inflation is 'defeated' and the Fed has cut rates, yet prices
remain too high for many
[October 13, 2025] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — Inflation has risen in three of the last four months
and is slightly higher than it was a year ago, when it helped sink
then-Vice President Kamala Harris' presidential campaign. Yet you
wouldn't know it from listening to President Donald Trump or even some
of the inflation fighters at the Federal Reserve.
Trump told the United Nations General Assembly late last month: “Grocery
prices are down, mortgage rates are down, and inflation has been
defeated.”
And at a high-profile speech in August, just before the Fed cut its key
interest rate for the first time this year, Federal Reserve Chair Jerome
Powell said: “Inflation, though still somewhat elevated, has come down a
great deal from its post-pandemic highs. Upside risks to inflation have
diminished.”
Yet dismissing or even downplaying inflation while it is still above the
Fed's target of 2% poses big risks for the White House and the Federal
Reserve. For the Trump administration, it could find itself on the wrong
side of a potent issue: Surveys show that many Americans still see high
prices as a major burden on their finances.
The Fed may be taking an even bigger gamble: It has cut its key interest
rate on the assumption that the Trump administration's tariffs will only
cause a temporary bump up in inflation. If that turns out to be wrong —
if inflation gets worse or remains elevated for longer than expected —
the Fed's inflation-fighting credibility could take a hit.
That credibility plays a crucial role in the Fed's ability to keep
prices stable. If Americans are confident that the central bank can keep
inflation in check, they won't take steps — such as demanding sharply
higher pay when prices rise — that can launch an inflationary spiral.
Companies often increase prices further to offset higher labor costs.
But Karen Dynan, a senior fellow at the Peterson Institute for
International Economics, said this week that with memories of
pandemic-era inflation still fresh and tariffs pushing up the cost of
imported goods, consumers and businesses could start to lose confidence
that inflation will stay low.
“If that proves to be the case, in hindsight it will be that the Fed
cuts -- and I do expect several more -- are going to be seen as a
mistake,” Dynan said.
So far, the Trump administration's tariffs haven't lifted inflation as
much as as many economists expected earlier this year. And it remains
far below its 9.1% peak three years ago. Still, consumer prices
increased 2.9% in August from a year earlier, up from 2.6% at the same
time last year and above the Fed’s 2% target.
The government is scheduled to release the September inflation report on
Wednesday, but the data will probably be delayed by the government
shutdown.
Tariffs have pushed up the cost of many imported items, including
furniture, appliances, and toys. Overall, the cost of long-lasting
manufactured goods rose nearly 2% in August from a year earlier. It was
a modest gain, but comes after nearly three decades when the cost of
such items mostly fell.
The cost of some everyday goods are still rising more quickly than
before the pandemic: Grocery prices moved up 2.7% in August from a year
ago, the largest gain, outside the pandemic, since 2015. Coffee prices
have soared nearly 21% in the past year, partly because Trump has
slapped 50% import taxes on Brazil, a leading coffee exporter, and also
because climate change-induced droughts have cut into coffee bean
harvests.
Most Fed officials are still concerned that inflation is too high,
according the minutes of its Sept. 16-17 meeting. Yet they still chose
to cut their key interest rate, because they were more worried about the
risk of worsening unemployment than about higher inflation.
[to top of second column] |
Pork chops are on display at a Sam's Club, Wednesday, Sept. 24,
2025, in Bentonville, Ark. (AP Photo/Charlie Riedel)
 But the concern for some economists
is that the ongoing rollout of tariffs and the fact that many
companies are still implementing price hikes in response could
result in more than just a temporary boost to inflation.
“It is a big gamble after what we’ve been going through ... to count
on it being transitory,” said Jason Furman, an economist at Harvard
University and a former top adviser to President Barack Obama. “Once
upon a time, (3% inflation) would have been considered really high.”
Just two weeks ago, Trump slapped new tariffs on a range of
products, including 100% on pharmaceuticals, 50% on kitchen cabinets
and bathroom vanities, and 25% on heavy trucks. On Friday, he
threatened “a massive increase of tariffs” on imports from China in
response to that country's restrictions on rare earth exports.
Some companies are still raising prices to offset the tariff costs.
Duties on steel and aluminum imports have pushed up the cost of the
cans used by Campbell Soups, leading the company’s CEO to say in
September that it will implement “surgical pricing initiatives."
Chris Butler, CEO of National Tree Company, the nation’s largest
artificial Christmas tree seller, says his company will raise prices
by about 10% this holiday season on its trees, wreaths, and garlands
to offset tariff costs. About 45% of its trees are made in China,
with the rest from Southeast Asia, Mexico, and other countries. The
cost of labor and real estate is too high to make them in the United
States, he said.
Butler also expects there will be a reduced supply of artificial
trees and decorations this year, which could lift industry-wide
prices further, because most production in China shut down when
tariffs on that country hit 145% earlier this year. Production
resumed after Trump reduced the duties to 30% but at a slower pace.
Butler has pushed his suppliers to absorb some of the cost of the
tariffs, but they won’t pay all of it.
“At the end of the day, we can’t absorb the entirety of it and our
factories can’t absorb the entirety of it,” he said. “So we’ve had
to pass along some of the increases to consumers.”
Many Fed policymakers are aware of the risks. Jeffrey Schmid,
president of the Federal Reserve Bank of Kansas City, who votes on
interest rate decisions, said Monday that high inflation that
results from a loss of confidence in the central bank is harder to
fight than other price spikes, such as those that result from supply
disruptions.
“The Fed must maintain its credibility on inflation,” Schmid said.
“History has shown that while all inflations are universally
disliked, not all inflations are equally costly to fight.”
Yet some Fed officials say that other trends are offsetting the
impact of tariffs. Fed governor Stephen Miran, whom Trump appointed
just before the central bank’s September meeting, said Tuesday that
a steady slowdown in rental costs should reduce underlying inflation
in the coming months. And the sharp drop in immigration as a result
of the administration’s clampdown will reduce demand, he said,
cooling inflation pressures.
“I’m more sanguine about the inflation outlook than a lot of other
people are,” he said.
All contents © copyright 2025 Associated Press. All rights reserved |
