President Donald Trump Just Threw the Fed Under the Bus Over Interest Rates (Again!), but He's Missing the Bigger Picture

Thanks to the artificial intelligence (AI) revolution, the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) have made a habit of catapulting to new highs amid a wall of worry. But renewed tensions between President Donald Trump and the Federal Reserve may limit the stock market's upside.

President Trump has been at odds with the Federal Open Market Committee (FOMC) -- the 12-person body, including the Fed chair, responsible for setting the nation's monetary policy -- since his second, non-consecutive term began on Jan. 20, 2025. Though the president has opined that policymakers should slash interest rates, Trump is completely missing the bigger picture for the U.S. economy and stock market.

President Trump has renewed his criticisms of the Federal Reserve. Image source: Official White House Photo by Molly Riley.

Donald Trump takes another jab at the FOMC

Earlier this week, President Trump renewed his criticisms of the FOMC, but spared his handpicked Fed Chair Kevin Warsh. Said the president:

My point is, years ago, 25 years ago, when the country announced good numbers, interest rates went down because we had a stronger economy. Now, when we announce good numbers, the better they are, the worse it is for interest rates.

Trump has previously suggested that interest rates should be slashed to 1% or lower. For context, former Fed Chair Jerome Powell and the FOMC lowered lending rates six times between September 2024 and December 2025 to the current federal funds target rate of 3.50%-3.75%. The president has argued that the FOMC hasn't cut rates quickly enough to support robust economic growth.

Presumably, lower interest rates would spur job growth, encourage aggressive AI data center spending, and make it easier for the federal government to service its total debt, which surpassed $40 trillion for the first time on Aug. 18.

Fed Chair Kevin Warsh faces a challenging task in delivering price stability. Image source: Official White House Photo by Daniel Torok.

The evolution of Trumpflation makes rate cuts highly unlikely

However, Donald Trump's continued digs at the FOMC completely miss the impacts that his own policies (i.e., Trumpflation) are having on consumer prices.

Former Fed Chair Powell and current Fed Chair Kevin Warsh have repeatedly cited President Trump's tariffs as a source of elevated inflation. The Trump administration recently announced a new wave of global tariffs, ranging from 10% to 12.5%, on more than 80 countries. Adding duties to select imported goods can increase production costs for businesses, which are then passed to consumers.

But the Iran war is a far bigger issue.

64.

As in 64 consecutive months with US core inflation above the Fed's 2% target.

The Fed has lost all credibility when it comes to fighting inflation.

Kevin Warsh talks a big game, but talk is cheap. The Fed should have hiked rates yesterday and ended QE. pic.twitter.com/HvimqfW6WW

-- Charlie Bilello (@charliebilello) July 30, 2026

Initially, the Iran war was marked by a historic energy supply disruption, which sent fuel prices soaring. However, the price stickiness of Core Personal Consumption Expenditures (PCE), which is forecast to hover around 3.3% in July and August, per the Cleveland Fed, indicates that Trumpflation has reached the broader economy. In other words, Trump-driven inflation has entrenched itself and will be far more challenging to combat.

Lowering interest rates with Core PCE above the FOMC's long-term inflation target of 2% for 64 consecutive months (and counting) isn't a viable option for policymakers. If anything, Warsh and his colleagues will need to tackle persistent Trumpflation head-on.

Unfortunately, if Warsh and the FOMC do raise interest rates, they'll be upsetting more than Donald Trump. Higher lending rates threaten to slow the AI infrastructure build-out and may prompt investors to rethink the stock market's historically pricey valuations.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.