President Donald Trump Claims the U.S. "Should Have the Lowest Interest Rates Anywhere in the World," but Trumpflation and the AI Revolution Make That Impossible

Over the last 130 years, stock market gains have been common under most presidents. However, the annualized returns of the timeless Dow Jones Industrial Average (DJINDICES:^DJI), benchmark S&P 500 (SNPINDEX:^GSPC), and innovation-inspired Nasdaq Composite (NASDAQINDEX:^IXIC) have been higher under Donald Trump than under most presidents since the late 1890s.

While President Trump has plenty to boast about concerning stock market gains, it's a completely different story on the inflation front. Trump has been hypercritical of the Federal Reserve's stance on interest rates and firmly believes the U.S. "should have the lowest interest rates anywhere in the world."

But there's a problem: Trumpflation (inflation specifically driven by Donald Trump's policies) and the artificial intelligence (AI) revolution have made it impossible for the central bank to lower interest rates.

President Trump's own policies remove rate cuts as an option. Image source: Official White House Photo by Joyce N. Boghosian.

President Trump believes the U.S. growth rate could reach 20%

Disagreements between the president and former Fed Chair Jerome Powell over interest rates were a common theme after Trump's January 2025 inauguration.

In the lead-up to the end of Powell's second term as Fed chair, Trump frequently chastised Powell and the Federal Open Market Committee (FOMC) for moving too slowly in cutting interest rates. For context, the Powell-led Fed lowered the federal funds target rate six times between September 2024 and December 2025 to its current range of 3.50%-3.75%.

However, President Trump has previously opined that interest rates should be 1% or lower. In Oval Office commentary with reporters, the president proclaimed that "success in growth does not cause inflation," and "we could have a GDP of 14%, 15%, 16%, and 20%" if the nation's central bank were to slash interest rates.

🚨 JUST IN: President Trump says US GDP growth could be up to +20% PERCENT if the Fed just got out of the way

"We could have a GDP of 14, 15, 16 and 20. But every time you do well, we just announced great numbers and so now they're talking about raising interest rates, it's… pic.twitter.com/9cvvoeUrjE

— Eric Daugherty (@EricLDaugh) August 31, 2026

In response to a reporter's query about the FOMC possibly raising interest rates in an upcoming meeting, Trump jabbed, "In the old days... if we announced good [economic] numbers, interest rates went down. Now, if you announce good numbers, interest rates go up because they're so afraid of inflation."

Lower lending rates would certainly be viewed as positive for economic growth. If businesses could borrow at a lower cost, the expectation would be increased hiring and more capital spent on innovation. Specifically, lower interest could fuel the partially debt-financed AI data center build-out.

Perhaps more importantly, lower interest rates would make it considerably easier for the U.S. to service its more than $40 trillion in total debt.

It's a utopian vision by the president, but one that's unfortunately impossible due to the effects of Trumpflation and the AI infrastructure build-out.

Image source: Getty Images.

Trumpflation and the AI revolution are entrenched in the broader economy

While a modest level of inflation is perfectly normal in an expanding economy, two of President Trump's policies -- tariffs and the Iran war -- are providing an added boost to the prevailing inflation rate.

Although Donald Trump's Liberation Day tariffs, unveiled on April 2, 2025, were ultimately invalidated by a February 2026 U.S. Supreme Court ruling, it hasn't stopped the Trump administration from reimposing sweeping global tariffs using different justifications. In July 2026, the president's administration announced a 10% to 12.5% tariff on select imports from more than 80 countries.

The inflationary concern with tariffs is that adding duties to unfinished goods (e.g., steel) can increase domestic manufacturing costs. These higher expenses are often passed on to consumers, leading to persistently higher inflation.

However, the Iran war is a much larger contributor to America's well-above-average inflation rate at the moment. Not long after President Trump green-lit military operations against Iran, the latter closed the Strait of Hormuz to most commercial maritime traffic. This action essentially halted the daily flow of a fifth of the world's petroleum liquids.

BREAKING: US July PCE inflation, the Fed's preferred inflation metric, hits 3.7%, above expectations of 3.6%.

Core PCE inflation was 3.3%, the second highest reading since October 2024.

US inflation continues to run at nearly double the Fed's 2.0% target.

Own assets or be left…

— The Kobeissi Letter (@KobeissiLetter) August 26, 2026

But the Iran war isn't just an energy supply issue any longer. The price stickiness of Core Personal Consumption Expenditures, which excludes volatile food and energy costs, serves as evidence that Iran-war-driven inflation has reached the broader economy. Businesses are paying more to alter their supply chains, reroute shipments, and purchase petroleum-based products, such as plastics. These higher costs are working their way down to consumers and boosting prices.

However, it's not solely Trumpflation that's driving the prevailing inflation rate higher.

As noted, Trump firmly believes that "success in growth does not cause inflation." But this statement holds true only when the supply of goods and services is available to meet demand. The AI infrastructure build-out is a textbook story of a supply and-demand mismatch. Demand for AI hardware vastly outstrips supply, giving infrastructure providers otherworldly pricing power. The FOMC has noted that these higher prices are working their way down the line to consumers.

The inflationary effects of President Trump's tariffs, the Iran war, and the AI infrastructure build-out are entrenched in the broader economy. Combatting the effects of entrenched inflation on consumer prices is challenging and will likely force Fed Chair Kevin Warsh and the FOMC into action.

Raising interest rates to tame Trumpflation and supercharged AI infrastructure pricing power is unlikely to go over well with President Trump or Wall Street. Though a rate-hiking cycle is likely seen as a necessary evil to avoid something worse happening, higher lending rates risk slowing the AI data center build-out. If growth rates taper, even modestly, for the second-priciest stock market in history, it could spell the end of Wall Street's historic four-year bull market.

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.