CPI Data: Inflation Stagnant Away From 2% Target, Will Powell and Trump Get Along?

• Annual inflation hit 2.9%, a 0.2% increase from November
• The Federal Reserve has steadily cut interest rates over the past 3 months
• Trump's policies could impact the Fed's efforts to manage interest rates

On January 15, the U.S. Bureau of Labor and Statistics released December's consumer price index data.

Annual inflation hit 2.9%, a 0.2% increase from November. The month-over-month inflation data reveals a stagnation at 0.4% — the same rate seen in the previous report. While it is true that the American inflation rate is maintaining itself under control, the previous reports show that the Fed has been unable to progress toward its target rate of 2%.

The Federal Reserve has steadily cut interest rates over the past 3 months. After 3 consecutive slashes, this apparent inflationary stagnation raises concerns for investors anticipating another interest rate cut.

Furthermore, the upcoming market outlook is set to become drastically different as America welcomes its new President on January 20th. While overall, Trump’s victory has boosted nearly all risky investments, some of the Republican’s campaign promises could make the Fed’s life difficult in its effort to lower interest rates.

For instance, throughout the campaign, Donald Trump promised to weigh in heavily on export tariffs for non-American products, particularly those coming from China. While this type of protectionism could benefit the local job market in the long run, the immediate effect would likely be an increase in prices for similar products in America.

Also, Trump doubled down on its 2017 tax cut policies, promising to promote even broader and more democratic tax cuts. If America significantly cuts tariffs, it will likely mean having to increase the Federal Deficit, generating a higher demand for the Dollar and therefore raising interest rates.

However, this much represents only the “pessimistic” side of the argument for the future of American inflation. During the same campaign, Trump promised to pressure the Fed to continue cutting interest rates during his Presidency.

While controlling the inflation target and interest rates are outside of the powers of the President of the United States—Trump could influence the Fed by appointing Fed officials that favor his point of view and implementing policies that could decrease inflationary pressures in the U.S. economy, and overall favor the cryptocurrency market.

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