President Donald Trump's 7-Word Take on Interest Rates Is Due for a Reality Check

Earlier this month, the widely followed Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and tech-stock-dependent Nasdaq Composite (NASDAQINDEX: ^IXIC) all ascended to fresh record highs.

The stock market producing outsize annualized returns under President Donald Trump is nothing new. The Dow, S&P 500, and Nasdaq skyrocketed 57%, 70%, and 142%, respectively, during Trump's first, non-consecutive term. Lately, the artificial intelligence (AI) data center build-out, better-than-expected corporate earnings, and record S&P 500 share buybacks in 2025 have fueled upside for equities.

But the Trump bull market may not be as healthy as the stock market's leading indexes suggest. Inflation is becoming a serious worry for Wall Street -- even as Trump himself believes investors should be looking beyond rising prices.

President Trump delivering remarks. Image source: Official White House Photo by Joyce N. Boghosian.

Donald Trump has repeatedly called on the FOMC to slash interest rates

If not for tariffs and the Iran war, perhaps the biggest story of Trump's second term has been his public feud with now-former Fed Chair Jerome Powell.

Since Trump's inauguration on Jan. 20, 2025, he's been critical of Powell and the Federal Open Market Committee (FOMC) for not aggressively slashing interest rates. The FOMC -- the 12-person body, including the Fed chair, responsible for setting the nation's monetary policy -- lowered the federal funds target rate on six occasions from September 2024 through December 2025. But the current range of 3.5% to 3.75% remains well above the president's touted target of 1% or below.

While Trump hasn't specifically mentioned why he's lobbied so vocally for lower interest rates, there are several implications. To start with, lower interest rates would incentivize businesses to borrow, thereby fueling the AI data center build-out and boosting hiring. The unemployment rate, while steady in recent months, has trended modestly higher over the last three years.

Rate cuts would also translate into lower Treasury bond yields, which in turn can indirectly drag down mortgage rates and make owning a home more affordable.

BREAKING...🚨🚨🚨

The US National Debt just crossed above $39 trillion for the first time, more than doubling over the last 10 years. pic.twitter.com/cFZYVuoJP3

-- Charlie Bilello (@charliebilello) March 18, 2026

However, making it easier to service U.S. national debt by lowering borrowing costs might be the No. 1 incentive for the president. Federal deficits have topped $1.38 trillion every fiscal year since this decade began, and this trend simply isn't sustainable.

In a recent interview with Kristen Welker on NBC's Meet the Press, Trump was candid in his response to Welker's insinuation that the Fed may be forced to raise interest rates. Said the president:

I think Kevin [Warsh] is – Kevin is fantastic, and I want him to do whatever he wants. I don't want to have a big influence on him. But we had a great [jobs] report. We're doing great, and it's unfair that whenever you do great, they want to raise interest rates. It should be the opposite way... There's no reason to raise interest rates.

Despite claiming to support Federal Reserve independence, these seven words, "there's no reason to raise interest rates," demonstrate that Donald Trump has maintained his hardline stance on monetary policy. The problem is that economic data, coupled with historical precedent, suggest Trump's seven-word take on interest rates is due for a reality check.

Image source: Getty Images.

The probability of interest rate hikes is rapidly rising

In February, trailing 12-month (TTM) inflation was a modest 2.4% and moving toward the Fed's long-established 2% inflation target. In other words, the FOMC maintaining its easing bias following six rate cuts since September 2024 made sense.

However, the Iran war changed everything.

Since President Trump ordered the U.S. military to attack Iran on Feb. 28, the daily flow of approximately 20 million barrels of petroleum liquids, representing 20% of worldwide demand, has been disrupted. The largest energy supply disruption in modern history comes with serious consequences.

Prices at the pump have soared in the wake of this disruption, pinching consumers' pocketbooks. Energy prices are the primary catalyst lifting TTM inflation from 2.4% in February to an estimated 4.18% in May, as of this writing on June 8 (i.e., before the official release of the May inflation report).

But energy supply shocks often have several stages. Though rapid increases in fuel prices typically garner the most headlines, it's the delayed effects of inflation on businesses that can be the most problematic. Once higher transportation and production costs filter into economic data, inflation can rise further and last longer.

US inflation is red hot.

1. CPI Inflation: 3.8%, highest since May 2023
2. PCE Inflation: 3.8%, highest since May 2023
3. PPI Inflation: 6%, highest since March 2023
4. Services Inflation: 3.4%, highest since Sept 2025
5. Shelter Inflation: 3.3%, highest since Sept 2025
6.... pic.twitter.com/u8kaSN54G3

-- The Kobeissi Letter (@KobeissiLetter) May 28, 2026

Despite the president's claim that "there's no reason to raise interest rates," the inflationary measure that FOMC members have historically favored, Core Personal Consumption Expenditures (PCE), is edging higher. Even though the June inflation forecast from the Cleveland Fed calls for a modest downtick in TTM inflation, Core PCE is expected to inch higher. This signifies that the inflationary effects of the Iran war are spilling over into non-energy sectors and industries. In short, there are clearly defined economic data points that support the potential for FOMC rate hikes.

Additionally, there are ample clues within the FOMC to suggest interest rate hikes, not cuts, are on the horizon. Aside from Trump's handpicked successor to Powell, Kevin Warsh, exhibiting hawkish voting tendencies as a former FOMC member (Feb. 24, 2006 – March 31, 2011), the April Fed meeting minutes note that a majority of members favored removing the easing bias statement. Shelving this statement and shifting to a neutral bias as early as the June 17 FOMC meeting would be the first step toward raising interest rates.

Even futures markets are betting against President Trump's take on interest rates. The CME Group's FedWatch Tool predicts a growing probability of rate hikes by late 2026/early 2027. There's a 71.3% probability of at least one rate hike taking place by the FOMC's December 2026 meeting, based on data from June 8.

While Wall Street would prefer the president to be correct, economic data and historical precedent point to rate hikes, not cuts, in the foreseeable future. A much-needed reality check for Trump on interest rates is undeniably worrisome for a historically pricey stock market that requires low lending rates to fuel the AI infrastructure build-out.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.