Trump ramps up Fed rate cut pressure after strong jobs, inflation reports

President Trump and top White House officials are ramping up pressure on the Federal Reserve to cut interest rates after two surprisingly strong economic reports.

Data released by the Labor Department on Friday showed inflation falling below economist expectations in January, two days after the January jobs report showed a surprising surge in hiring last month.

The double dose of good economic news was sorely needed for Trump and Republicans, who have faced backlash over the state of the job market and inflation for more than a year.

“We’ve brought costs way down, and the numbers were surprising — except to me, they weren’t surprising,” Trump said Friday at the White House.

“The inflation numbers are way down. We brought it back on track,” he continued.

Trump administration officials are now arguing that the combination of better-than-expected job gains and inflation should convince the Fed to heed the president’s call for lower interest rates.

“With inflation now low and stable, America’s economy is set to turbocharge even further through long-overdue interest rate cuts from the Fed,” White House deputy press secretary Kush Desai said in a statement following the consumer price index (CPI) report.

Fed officials are expecting to cut interest rates twice this year, according to projections released in December, and the new inflation data could help make the case for additional reductions.

“The Fed’s path to ‘normalization’ cuts appears clearer now with fears of a strong January print behind us with CPI coming in cold,” said Lindsay Rosner, head of multisector fixed income investing at Goldman Sachs Asset Management.

But those cuts may not come until well after the Fed’s next policy meeting in March, experts say, risking another blowup between Trump and Fed Chair Jerome Powell.

“How short or long that path is however will depend on whether employment continues to show signs of improvement, given the [Fed’s] sensitivity to labor market weakness.”

The Federal Open Market Committee (FOMC), the panel of Fed officials responsible for setting monetary policy, cut interest rates three times in 2025 as the job market sputtered during Trump’s first term and inflation bounced around its 2.6 percent annual level in November 2024.

At the time, Powell and Fed officials were attempting to balance the threats of deeper job losses — which usually prompt rate cuts — and higher inflation, which usually prompts rate hikes.

The Fed’s careful approach drew fury from Trump and White House officials, who had insisted inflation was under control and accused Powell of needlessly choking out the economy. 

Two weeks after the Fed delivered its third consecutive rate cut of the year, the Justice Department announced a criminal probe into the Fed and Powell’s handling of renovations to its headquarters. 

Powell — along with scores of Fed alumni, lawmakers, economists and analysts — denounced the probe as a thinly veiled effort to pressure the bank into deeper rate cuts. 

The Fed then held rates steady at its most recent meeting in January, voting 10-2 to keep its baseline interest rate range between 3.5 percent and 3.75 percent.

In a press conference following the Fed’s decision, Powell said that he and his colleagues thought it was “appropriate” to leave rates alone. The job market appeared to be “stabilizing” after a period of rising unemployment, he said, and inflation had remained well above the Fed’s target of 2 percent annual price growth.

“The economy is growing at a solid pace, the unemployment rate has been broadly stable, and inflation remains somewhat elevated. So we’ll be looking to our goal variables and letting the data light the way for us,” Powell said.

The January data released this week showed early signs of those trends reversing in 2026, with the U.S. gaining 130,000 jobs last month and the annual inflation rate dropping to 2.5 percent, according to the consumer price index.

“The United States of America should be paying MUCH LESS on its Borrowings (BONDS!). We are again the strongest Country in the World, and should therefore be paying the LOWEST INTEREST RATE, by far,” Trump wrote in a Truth Social post touting the jobs report Wednesday.

Rosner said she and her team are still expecting the Fed to cut rates twice this year, with the first coming in June. Investors broadly see the Fed sticking to this schedule, according to the CME Group FedWatch tool, which tracks bets placed on future Fed interest rate moves.

Traders see a 90.2 percent chance the Fed holds rates steady at its next meeting in March and 69.7 percent chance of no cut in April, but a 68.9 percent chance of a cut in June, according to FedWatch.

If those expectations hold, the Fed’s first cut wouldn’t come until the end of Powell’s term as Fed chair, which expires in May.

Trump nominated former Fed board member Kevin Warsh to replace Powell last month, and his Senate confirmation could help lead the bank to the deeper cuts the president is seeking.

“Warsh appears to prefer a return to a more forward-looking approach, based on the idea that the economy has entered a structural acceleration in the rate of potential economic growth, fueled by AI, among other factors,” explained Michael Pearce, deputy chief economist at Oxford Economics.

“There’s already support for that idea on the policy committee, with Governor Christopher Waller, who was in the running for the chair, expressing similar views.”

Kevin Hassett, director of the National Economic Council, made a similar argument Wednesday after the January jobs surprise. Instead of seeing higher job growth as a reason to keep rates higher, Hassett said, the Fed should embrace the chance to add more fuel to a potential economic boom driven by AI.

“Right now, we’ve got high growth and low inflation. And I think there’s plenty of room for the Fed to cut rates,” Hassett said in an interview on Fox Business Network.

“This theory — about why you would lift rates right now because of high growth — is an old fashioned Phillips Curve story that doesn’t really apply when you get a big, positive supply shock from AI or the internet,” he continued, referring to the traditional economic model in which inflation and unemployment work in opposite directions.

Even so, putting additional pressure on Powell to deliver lower rates could end up delaying Warsh’s opportunity to do so.

Sen. Thom Tillis (R-N.C.), who is retiring after 2026, has vowed to block all Trump Fed nominees until the Justice Department resolves its criminal investigation into the central bank.

As a member of the Senate Banking Committee, Tillis could also deadlock the panel’s vote to advance Warsh’s nomination, assuming all Democrats hold the line against Trump’s pick.

Tillis said Friday that he will continue to hold the line against Warsh, whom he would otherwise support, and rebuffed Treasury Secretary Scott Bessent’s suggestion to shift the Powell probe to the Senate Banking Commitee, which is responsible for Fed oversight.

“I don’t think it’s an off-ramp, I think it’s a suggestion for good governance. I don’t think we do enough oversight on how our plans work out in terms of cost of time,” Tillis said of Bessent’s offer.

“It doesn’t change my posture,” he said.

Alexander Bolton contributed

Source: The Hill