Trump says Fed should lower rates by ‘one full point’

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By Michael S. Derby

(Reuters) -U.S. President Donald Trump reiterated his call for the Federal Reserve to push through a major rate cut in the wake of the release of new data Wednesday on consumer inflation.

Trump called the May Consumer Price Index a “great” number and wrote on Truth Social that the “Fed should lower one full point. Would pay much less interest on debt coming due. So important!!!”

The May CPI showed a modest increase in inflation relative to a year ago, as many forecasters expect price pressures to accelerate due to the president’s massive increase in import taxes on a wide range of goods. The overall CPI for last month rose by 2.4% relative to May 2024, a touch above the April year-over-year reading, while the CPI stripped of food and energy costs was up by 2.8% over the same time period.

The CPI readings arrive ahead of a Fed policy meeting next week where officials are virtually certain to keep the central bank’s interest rate target range fixed at between 4.25% and 4.5%. Fed officials have signaled they are in a wait-and-see mode right now as the chaotic nature of the Trump administration’s trade policy has made it very hard to know what lies ahead for the economy.

A wide range of economists, as well as Fed officials, believe the tariffs will increase inflation while lowering growth and depressing employment. Some of those risks have moderated as Trump has backed away from some of the most draconian tariffs.

The main question facing the Fed is whether the tariffs will drive a one-time price increase that can be ignored, or create something more persistent.

A recent report from the New York Fed showed factory and service firms passing through a notable amount of tariffs. But at the same time, a separate New York Fed report released on Monday showed the public has become less worried about future inflation, which could reduce the risk of an enduring increase in price pressures.

Following the CPI data release, futures markets increased odds the central bank will lower rates at its September meeting.

Citibank economists said the CPI data “should give Fed officials further confidence that underlying inflation has been easing more rapidly this year ahead of upside risks from tariffs, and that the risk of more persistent inflation resulting from tariffs is low.” They added “we continue to pencil in 125 basis points of consecutive rate cuts from the Fed starting in September.”

Other economists, however, were more cautious about the longer-run outlook for inflation.

Skanda Amarnath, executive director of Employ America, said “we are likely to see a material acceleration in goods inflation and electricity inflation later this summer, both of which threaten to keep interest rates higher for longer and raise recession risk as a result.”

Trump’s call for a full percentage point interest rate cut advocates for a policy action central bankers usually reserve for economic emergencies. The president has been pressing for easier monetary policy for some time even as Fed officials have shrugged off his commentary.

Trump’s comment on how a Fed rate cut would lower government interest payments alludes to the massive bill high short-term interest rates have imposed on government borrowing.

That said, the Fed is mandated by Congress to set interest rates to keep inflation low while promoting maximum sustainable job growth. The Fed is not charged with managing government borrowing costs and officials have said that is not a factor in how they deliberate on the future of interest rate policy.

(Reporting by Michael S. Derby and Ismail Shakil in Ottawa; Editing by Andrea Ricci)