Donald Trump used his enthusiastic attendance at the World Economic Forum in Davos to claim the United States had “beaten” inflation and pointed to what he called a booming economy.
But the numbers tell a more modest story. While inflation has certainly cooled, it is far from ideal, with inflation at 2.7% in December, still above the Federal Reserve’s 2% target.
President Trump described the U.S. economy in the best terms while lambasting his predecessor, telling his audience that the first year of his second term was characterized by “explosive growth…a spike in productivity” and “rising incomes.”
He dubbed the United States “the economic engine of the planet,” declared that “when America is doing well, the whole world is doing well,” and claimed to have reduced the U.S. trade deficit by 77% in one year through historic trade deals that “increased wealth” and helped boost stock markets.
But the data paint a more muted picture. Consumer prices continued to rise in December, with headline inflation at 2.7% and core inflation at 2.6%, according to the latest report released by the Bureau of Labor Statistics.
Prices continued to rise each month, with the overall inflation rate rising by 0.3% and the core inflation rate rising by 0.2%.
These price pressures are particularly evident in everyday goods. The cost of groceries is now about 25% higher than before the pandemic, with grocery prices alone rising 0.7% in December and 2.4% over the past year.
The real tax burden is yet to come.
Federal Reserve President John Williams predicted last year that the true impact of the Trump administration’s sweeping tariffs on major U.S. importers would not be felt until late 2025 or 2026, although the president’s recent threat to raise tariffs on some EU countries has since diminished slightly.
Most large companies operating in the U.S. have front-loaded inventories ahead of the tariffs, and once inventories are reduced in the new year and there is further disruption to broader manufacturing lines, prices will begin to rise in earnest.
So far, the tariffs are estimated to have increased inflation by about 0.5 percentage points.
This directly contradicts President Trump’s claim at Davos that he had reduced the trade deficit “without inflation.”
Food prices remain high
Much of today’s food sticker shock was baked into Biden’s tenure, when pandemic-era supply chain bottlenecks and soaring transportation, fuel and labor costs (exacerbated by the global commodity shock after Russia’s invasion of Ukraine) sent food prices skyrocketing.
President Trump has called for lower prices, including for essential items such as eggs, but has failed to achieve significant price reductions.
Despite President Trump’s claims that “people are doing very well,” surveys show widespread affordability concerns among Americans, with most respondents saying the administration is not doing enough to lower prices and many reporting that their living conditions are actually getting worse.
Is an interest rate cut imminent?
Nevertheless, signs of slowing inflation mean a rate cut is likely later this year, even if people still don’t feel safe.
Fed officials have suggested there may be more room to ease borrowing costs without hampering progress in reining in price pressures.
The Fed already cut its key policy rate by a quarter of a percentage point in December, and although Chairman Jerome Powell has not specified the future trajectory of policy, the latest data supports the possibility of cuts that could eventually lead to lower mortgage, auto loan and credit card rates.
At the same time, the White House is moving rapidly to reorganize the Federal Reserve’s leadership.
Treasury Secretary Scott Bessent said in Davos that President Trump is close to selecting a new Fed chair, with the finalists narrowed to four. Bessent said President Trump is meeting privately with candidates and a decision could be made as early as next week.
Problems at the Fed
The investigation follows months of criticism from the administration over Chairman Jerome Powell’s handling of interest rates and broader central bank governance issues, as well as a Justice Department subpoena related to renovations to the Fed building.
President Trump has repeatedly called on the Fed to cut interest rates more aggressively, so the timing of the selection will be key.
He argued that lower borrowing costs would support the economy and reduce the government’s heavy interest burden.
As a result, candidates under consideration are expected to be more aligned with the administration’s push to prioritize faster interest rate cuts, even though inflation remains above target.
Powell’s term ends in May, but he could remain governor until 2028.