Trump urges for interest rate cuts again, "New Federal Reserve News Agency" pours cold water: April CPI does not reflect tariff impact, inflation pressure will emerge thereafter

Former President Trump has once again urged the Federal Reserve to cut interest rates, but Nick Timiraos, a senior Fed reporter known as the "new Fed communicator," poured cold water on the idea. He believes that the troubles of tariffs pushing up inflation have not yet appeared in the recently released CPI data, suggesting that the Fed needs to wait and see how inflationary pressures change with new data.

On May 13th, Tuesday, Eastern Time, Trump posted on his social media calling for the Fed to lower interest rates, reiterating that there is no inflation.

Trump's post stated: "There is no inflation, and the prices of gasoline, energy, groceries, and almost all other goods are falling! The Fed must lower interest rates," just like central banks in Europe and elsewhere are already doing. He again called out Fed Chairman Jerome Powell, nicknamed "too late," asking what the problem is.

On the same Tuesday, Timiraos participated in writing a report that began by stating, April's inflation was mild, but economists believe that tariffs will end the recent low inflation state and push prices higher in the coming months.

The report emphasized the complexity and uncertainty in the April CPI inflation data, arguing that while current inflation data is relatively mild, the full impact of tariff policies has yet to be seen.

This uncertainty will affect businesses, consumers, and policymakers alike. Businesses need to carefully assess the costs increased by tariff policies and develop response strategies. Consumers may face upward pressure on prices. The Fed needs to find a balance between inflation and economic growth and cautiously formulate monetary policy. The report made the analogy:

"For the Fed, April's inflation data will be seen as observing clear weather before an impending storm, while the rainfall remains highly uncertain."

April Inflation Performance Acceptable, Tariff Impact May Emerge in Coming Months

The inflation data for April showed some positive signals. As mentioned, the CPI rose 0.2% month-on-month, in line with market expectations. More optimistically, the annual inflation rate fell to 2.3%, below the 2.4% predicted by economists. The significant year-on-year decline in gasoline prices also played a positive role in controlling inflation. These data undoubtedly brought some comfort to the market.

However, behind the optimism lies concern. As Andy Schneider, an American economist at BNP Paribas, said: "You can't be too optimistic about this report."

Timiraos's report cited comments from Oliver Allen, an American economist at Pantheon Macroeconomics, stating that the tariffs announced by the Trump administration in April made it difficult to notice that the year-on-year CPI growth rate had fallen to its lowest level since February 2021.

"This is not entirely irrelevant, but the huge (tariff) shock is coming; we just haven't had time to feel it yet."

In summary, while the current inflation data is performing acceptably, the impact of tariffs may gradually emerge in the coming months.

Tariff Policy "Roller Coaster," Fed Has Little Reason Not to Wait and See

April was a month of extreme instability for the Trump administration's tariff policy. The White House's erratic policies forced businesses to rush to adjust their response strategies. This "roller coaster" tariff policy has brought significant uncertainty to businessesMany companies find it difficult to formulate long-term business plans. Morgan Stanley's Chief U.S. Economist Michael Gapen stated, "The products on store shelves today are based on agreements made two to three months ago."

Timiraos' report suggests:

"The inflation data for April provided almost no reason for Federal Reserve officials to change their wait-and-see stance, as officials are preparing to respond to rising or distorted costs with the full implementation of tariffs."

Market Reaction: Mainly Wait-and-See

In response to the inflation data for April and the uncertainty surrounding tariff policies, the market reacted cautiously. The Dow Jones slightly declined, while the S&P 500 index saw an increase. Reports indicate that this suggests investors believe it is still too early to assess the full impact of the Trump administration's tariff policies.

The previous day, on Monday, U.S. stocks surged after China and the U.S. announced a consensus to reduce tariffs during high-level economic and trade talks.

According to Xinhua News Agency, a spokesperson for the Ministry of Commerce stated that the recent high-level economic and trade talks between China and the U.S. made substantial progress, significantly reducing bilateral tariff levels. The U.S. canceled a total of 91% of the additional tariffs, while China correspondingly canceled 91% of the counter-tariffs; the U.S. suspended the implementation of a 24% "reciprocal tariff," and China also suspended the implementation of a 24% counter-tariff.

Timiraos' report suggests that for the Federal Reserve, the inflation data for April does not prompt a change in their "wait-and-see" stance. Federal Reserve officials are preparing for the impact of tariffs, expecting that tariffs will lead to rising costs or market distortions.

Uncertainty Looms Ahead

The direction of inflation remains highly uncertain in the coming months. Timiraos' report suggests,

"If the Trump administration had not implemented widespread tariff measures in April, the inflation data released now might have been sufficient to prompt the Federal Reserve to resume rate cuts. Costs may rise in the coming months, which could lead the Federal Reserve to remain on hold until officials are confident that businesses will not continue to raise prices."

The report also mentions that prices for some tariff-related goods have already begun to rise, such as furniture, auto parts, and audio equipment. Meanwhile, the decline in airfare prices may suggest that consumers have postponed vacation plans.

Many companies are still trying to avoid passing tariff costs onto consumers, partly due to their uncertainty about the level of tariffs that Trump will ultimately implement. Economists expect that the peak impact of tariffs may not be felt until the summer.

Goldman Sachs economists recently wrote in a report, "The advance stocking of inventory may moderately delay the transmission of higher prices to consumers."