President Donald Trump’s Interest-Rate Ultimatum Will Likely Fall on Deaf Ears Due to 3 Factors, One of Which Is Trumpflation

Key Points

• Statistically, few presidents since the late 1890s have overseen higher annualized stock market returns than President Trump.

• The president has been vocal about the Federal Open Market Committee’s (FOMC) unwillingness to slash interest rates.

• Two of Trump’s policies are driving up inflation and making it virtually impossible for the Fed to consider rate cuts.

• Wall Street’s No. 1 catalyst is also boosting consumer prices, making the president’s call for lower rates a moot point.

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Since the late 1890s, Wall Street’s major stock indexes have risen under roughly three-quarters of all presidential terms. However, the annualized returns of the timeless Dow Jones Industrial Average (DJINDICES:^DJI), benchmark S&P 500 (SNPINDEX:^GSPC), and tech-driven Nasdaq Composite (NASDAQINDEX:^IXIC) have been notably higher under President Donald Trump than under most other presidents.

Trump’s first, non-consecutive term delivered gains of 57%, 70%, and 142% for the Dow, S&P 500, and Nasdaq Composite, respectively. Thus far, his second term has been an encore performance, with the Dow, S&P 500, and Nasdaq higher by 23%, 29%, and 35% through the Labor Day holiday.

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While Donald Trump has frequently used the stock market as something of a scoreboard for his administration, there’s one metric that continues to irk the president: interest rates.

President Trump has repeatedly thrown the Federal Reserve under the bus for not lowering interest rates. Image source: Official White House Photo by Daniel Torok.

President Trump has repeatedly harped on the Federal Reserve to lower interest rates, and even went so far as to deliver an interest rate ultimatum of sorts last week. However, the president’s internet outburst is likely to fall on deaf ears, thanks in large part to three factors, one of which is Trumpflation.

President Trump has been urging the Fed to slash rates for over a year

Not long after Trump was sworn in for his second term, he began a public feud with then-Fed Chair Jerome Powell. Although Powell was originally nominated as the Fed’s 16th chair by Trump during his first term, the president became weary of Powell and the Federal Open Market Committee (FOMC) being unwilling to slash interest rates.

For context, the 12 voting members of the FOMC, including the Fed chair, lowered the federal funds target rate on six occasions from September 2024 to December 2025. However, the current federal funds target rate of 3.50%-3.75% is notably higher than President Trump’s suggestion that rates be at 1% or lower.

Even after Powell’s term ended in mid-May and his handpicked successor, Kevin Warsh, took the reins as the 17th head of the Fed, the attacks against the FOMC continued. In July, he praised the new Fed chair while tearing into the other 11 FOMC voters by stating:

Kevin’s fantastic, but he’s got a board, and the board members are very political… You need the consent of some people that have perhaps bad intentions.

BREAKING: President Trump calls on the Fed to cut interest rates after the August jobs report nearly triples expectations.

Trump also threatens to “stop trading with countries with which we have a deficit” if the Fed does not cut rates.

The Fed “must get smart,” Trump says. pic.twitter.com/xC3mr4AVeZ

— The Kobeissi Letter (@KobeissiLetter) September 4, 2026

But this is nothing compared to the president’s Sept. 4 social media outburst on Truth Social, where he proclaimed:

We should have the lowest rate of any country in the World…. Lower the rate or I’ll stop trading with countries with which we have a deficit.

While the president has acknowledged that the Federal Reserve is an independent entity operating within the government that’s free of political persuasion, it hasn’t stopped him from vocally calling out policymakers for not heeding his suggestions on interest rates.

Although lower lending rates would undoubtedly fuel corporate spending amid the artificial intelligence (AI) infrastructure build-out and would make it considerably less costly to service America’s debt, three factors make it virtually impossible for Fed Chair Warsh and his FOMC colleagues to take Trump’s demands for lower interest rates seriously.

Image source: Official White House Photo by Daniel Torok.

Collectively, three factors make it virtually impossible to lower interest rates

Members of the FOMC are bound by the dual mandate of maximum employment and price stability. During Warsh’s Jackson Hole speech on Aug. 28, he made clear that price stability takes priority at the moment. Lowering interest rates simply isn’t part of the plan for a variety of reasons.

1. Trumpflation is entrenched in the U.S. economy

Firstly, Trumpflation (inflation specifically driven by President Trump’s policies) is a serious problem.

The president’s sweeping global tariffs are adding duties on certain unfinished imported goods and increasing domestic manufacturing costs, which are then passed on to consumers. Although the U.S. Supreme Court struck down the president’s Liberation Day tariffs, his administration reimposed sweeping tariffs, ranging from 10% to 12.5%, on more than 80 countries in July 2026.

The U.S. will impose tariffs ranging from 10% to 12.5% on its major trading partners as part of a new set of duties that the Trump administration says are designed to combat forced labor: WSJ

— zerohedge (@zerohedge) July 23, 2026

Additionally, the Iran war has created the largest energy supply disruption in modern history, courtesy of Iran’s closure of the Strait of Hormuz. Higher fuel prices, coupled with the effects of the Iran war becoming entrenched in the U.S. economy, mean that Trumpflation is directly boosting the prevailing inflation rate.

2. AI has become inflationary

Secondly, the stock market’s leading catalyst, AI, isn’t cooperating with Trump’s interest rate ultimatum.

On the one hand, demand for AI infrastructure is off the charts. The insatiable demand for graphics processing units, memory and storage solutions, and customizable rack servers, coupled with constrained supply for these goods, has afforded AI hardware companies with otherworldly pricing power. The AI revolution is also a positive for economic growth.

Fed now officially blaming AI for rise in core inflation:

“Core goods price inflation had risen relative to a year earlier, which the staff judged as largely reflecting the effects of tariffs and AI-related price pressures”
* * *
“Some participants remarked that productivity… https://t.co/ne8TnjRV8s

— zerohedge (@zerohedge) July 8, 2026

The downside to this growth, from the Fed’s perspective, is that this exceptional pricing power is working its way down the chain and lifting consumer prices. While most FOMC policymakers believe AI will eventually increase output and be disinflationary, we’re likely several years away from that happening. In other words, AI is currently viewed by FOMC policymakers as a source of persistent, elevated inflation.

If the FOMC chooses to raise interest rates to stymie inflation (including AI-driven inflation), it could throw a monkey wrench into the Dow’s, S&P 500’s, and Nasdaq Composite’s No. 1 growth catalyst.

3. Rate cuts won’t abate persistently elevated inflation

Thirdly, Fed Chair Warsh and his peers have to consider the persistence of above-average inflation when setting monetary policy. Jerome Powell’s successor has hammered home that the central bank will deliver price stability and recently drew a proverbial line in the sand at the Fed’s long-term target of 2%.

65.

As in 65 consecutive months with US inflation above the Fed’s 2% target.

The Fed has lost all credibility when it comes to fighting inflation. pic.twitter.com/WErvde2rue

— Charlie Bilello (@charliebilello) August 12, 2026

For 65 months (through the July inflation report), the prevailing inflation rate has been above this 2% mark. Warsh’s Jackson Hole speech made clear that policymakers want more than just a modestly declining inflation rate. Prices need to come down “at sufficient speed,” according to the Fed chair. Rate cuts simply aren’t conducive to Warsh’s and the FOMC’s repeatedly stated goal of price stability.

Despite President Trump repeatedly throwing FOMC policymakers under the bus, his public calls for lower interest rates are likely to go unheeded.

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