Inflation Is Already 3.3%. Why Is Trump Still Calling for Rate Cuts?

PCE inflation is already 3.3%, yet Trump, with his reputation for knowing better than everyone else, continues to call publicly for rate cuts. He may not be misunderstanding the numbers. More likely, he and the Federal Reserve are looking at two different ledgers. The same decision to cut rates produces very different results in the Fed's accounts and in the government's fiscal accounts.

The Fed's Ledger

The Fed has two jobs: managing prices and employment, under the Federal Reserve Reform Act of 1977. On prices, July core PCE inflation has reached 3.34% and remained unchanged for two consecutive months. CPI tells a similar story: 3.4% on the BLS's unadjusted basis, or about 3.3% after seasonal adjustment, with no further progress. On employment, the unemployment rate is 4.1%, while hourly earnings growth is 3.1%, its lowest since 2020.

Inflation has not reached the target, and employment has not weakened enough to need rescuing. As of September 8, markets put the probability of a September rate increase at 60.4%, with a 39.6% probability of no change, using CME FedWatch figures reported by Cailian Press. The probability of a cut was almost zero. In the Fed's ledger, there is therefore no reason to cut rates for now.

The Fiscal Ledger Tells a Different Story

Federal debt has reached roughly $40 trillion, and the CBO projects net interest spending of about $1 trillion in fiscal year 2026. At this point, you might ask: wouldn't lower rates save on interest? Yes, but do not calculate the saving by multiplying $40 trillion by 0.25%.

Most outstanding debt carries fixed interest rates, with an average maturity of about six years. Only new issuance and debt being refinanced can actually be repriced. The saving in the first year would therefore be much less impressive than that rough calculation suggests.

The fiscal authorities are not indifferent to inflation either. Uncontrolled inflation would push up long-term rates and make the interest burden heavier. For now, though, the hole created by interest spending feels more urgent than inflation. The difference is one of urgency.

Where Does the Disagreement Come From?

The Fed's cost—inflation rebounding—does not rank first in the fiscal ledger. The fiscal benefit—a lighter interest bill—is not the Fed's responsibility in its own ledger. The two ledgers measure different things, so naturally they produce different answers. It is not a question of one side being right and the other wrong. They are accountable for different outcomes.

Of course, the ledgers are not entirely independent. If inflation really breaks loose and long-term rates surge, fiscal pressure will only increase. That chain reaction takes time, however, while the interest bill requires real payments every quarter.

When Could Both Ledgers Say It Is Safe to Cut?

August CPI will be released on September 11, but it updates only the Fed's ledger; it has no direct connection to the fiscal interest bill. For both sides to agree, two conditions would have to come together: inflation returning to 2% and employment weakening. Only then would a rate cut be both a safe policy move for the Fed and relief for the fiscal authorities.