Meanwhile, markets are closely tracking the size and scale of tariffs implemented by the new administration, which many economists worry could prove inflationary. However, a day after hitting all foreign steel and aluminum with a 25% tax, Trump suggested slashing interest rates could, in fact, complement increased prices on imports.  

“Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!!” Trump posted on Truth Social, his media platform. “Lets Rock and Roll, America!!!”

Trump has repeatedly criticized Federal Reserve Chair Jerome Powell, whom he appointed to lead the central bank in 2018. Trump has suggested the president should get a say in interest rate decisions, contrary to the Fed’s traditional independence from elected officials. 

After the release of Wednesday’s inflation data, however, bond yields spiked as Wall Street wrestled with the possibility the Fed will stand pat this year, or perhaps even hike rates when it eventually makes its next move. The central bank has seemingly achieved a so-called soft landing, reducing inflation from its four-decade highs in 2022 without inducing a recession, but that could change if another surge in prices forces the Fed to increase borrowing costs once again. On Tuesday, Powell told Congress the central bank would not be in a hurry to adjust course as the economy remains strong and inflation remains above the Fed’s 2% target. 

Annual inflation now sits at 3% after the consumer price index, which estimates the costs of goods and services across the U.S. economy, increased 0.5% in January, the Bureau of Labor Statistics reported Wednesday morning. The market had anticipated that number coming in at 0.3%.

“Today’s data reaffirms Powell’s decision to put rate cuts on the back burner for an extended period of time,” Charlie Ripley, senior investment strategist for Allianz Investment Management, said in a statement. “Overall, today’s inflation data should force market participants to rethink the Fed’s ability to cut rates this year, especially considering the rise in prices is likely unrelated to any tariff activity from the White House.”

Trump and Bessent focus on 10-year Treasury  

If inflation remains stubbornly above the Fed’s target, it will be difficult for borrowing costs to come down. The rates of mortgages, credit cards, and other common types of loans are based on the yield of the 10-year Treasury note, which had increased 10 basis points to roughly 4.63% as of Wednesday afternoon. 

The Fed controls the Federal funds rate that banks pay to borrow money from each other overnight, which then typically influences borrowing costs throughout the economy. Long-term yields, however, have largely refused to cooperate since the central bank embarked on a long-awaited rate-cutting regime last fall, something Trump criticized at the time as politically motivated. The 10-year yield has jumped nearly 90 basis points since Oct. 1, when it sat at 3.74%.  

Treasury Secretary Scott Bessent has said he and Trump are focused on lowering that benchmark rate, regardless of the Fed’s decisions.

“It’s quite unconventional for the Treasury Department and the White House to take an active role in influencing the 10-year yield,” Ryan Detrick, chief market strategist at Carson Group, recently told CNN. “The administration can only influence yields indirectly with fiscal policy and deregulation.”

And Wednesday’s update on inflation signals that will be much easier said than done.