Inflation Rises to 4.1% as Trump Administration Eases Pressure on Fed Rate Cuts
Taylor Wilson
U.S. May PCE inflation rose to 4.1% year-on-year, more than double the Fed's target. Trump's core economic advisers have collectively shifted to a wait-and-see stance, dropping public calls for rate cuts and giving new Fed Chair Kevin Warsh room to act independently.
How bad is the inflation print?
May PCE rose 4.1% year-on-year; core PCE — stripping out food and energy — hit 3.4%. Both are far above the Fed's 2% target.
The Iran war drove energy prices sharply higher, a major factor behind the jump.
This means → the Fed has no case for cutting rates at this level. Inflation is running more than double the target; a cut would be pouring fuel on the fire.
Why did the White House stop pushing for cuts?
An anonymous White House official told CNBC that since Warsh took office, "the president's position is far more nuanced than 'rates must come down,'" adding there is "no daylight" between the president and his advisers.
The official attributed the shift to personnel: Trump has "confidence and trust" in Warsh, and is willing to hand him decision-making power he would never have given former Chair Jerome Powell.
In plain terms = once your own person is in the chair, you don't need to shout from the sidelines — trust replaces pressure.
What are the advisers actually saying?
Trade adviser Peter Navarro wrote that the latest inflation data support the Fed "holding rates steady" — a clear pivot from his earlier calls for cuts. He still insists a hike would be "stupid."
Treasury Secretary Scott Bessent declined to say whether the Fed should cut, saying only to "keep an open mind," and that he wants to see how inflation moves after the Iran conflict ends.
NEC Director Kevin Hassett backed Warsh "standing firm and holding rates" at his first policy meeting.
Has Trump himself really stopped pushing?
Despite the adviser pivot, Trump said Wednesday at a White House event: "We need low interest rates. Low rates fix everything — they can fix it right now."
This reflects a gap inside the White House — advisers are giving Warsh space, but the president's instinct hasn't changed.
This means → the "independence" Warsh has been granted is conditional. If inflation stays sticky, presidential patience could run out fast.
What is the market pricing in?
The Fed held rates steady and dropped its prior forward guidance tilted toward cuts. Nearly half of Fed policymakers now project a rate hike this year.
CME FedWatch data as of Friday morning put the probability of a hike by year-end at 79% — a complete reversal from the rate-cut expectations that prevailed before the war.
In plain terms = a few months ago the market was betting on cuts. Now nearly four in five dollars are on a hike. The wind has flipped entirely.
What comes next?
The Iran strait reopening deal is in place and energy prices have started to ease. If the trend holds, subsequent inflation prints could fall meaningfully.
The key variable: whether inflation cools fast enough, and far enough, to let Warsh keep his hawkish stance at the verbal level only.
This means → if inflation doesn't visibly cool over the next two to three months, Warsh will have no choice but to turn "watching closely" into an actual rate hike.
Content is for reference only, not financial advice.