The Data Doesn't Lie: Trumpflation Is Becoming More Entrenched, Which Is Bad News for the Fed and Wall Street

Since early June, the timeless Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and growth-stock-dominated Nasdaq Composite (NASDAQINDEX: ^IXIC) have blasted to new highs. But this stock market outperformance, which has been commonplace under President Donald Trump, likely can't sweep inflationary concerns under the rug indefinitely.

New data indicate that Trumpflation (i.e., inflation directly driven by Trump's policies) is evolving -- and that's terrible news for the stock market and Federal Reserve policymakers aiming to stabilize prices.

President Trump's policies are doing a number on inflation. Image source: Official White House Photo by Daniel Torok.

Trumpflation is digging in its heels

Although President Trump's tariffs have provided a modest boost to prices in the goods sector, it's the Trump-led Iran war that's primarily lifted inflation to multiyear highs. Shortly after the president green-lit military operations against Iran, the latter closed the Strait of Hormuz to virtually all maritime traffic. Doing so essentially halted the movement of a fifth of the world's petroleum liquids.

For several months, the Iran war was a story that revolved around historic energy supply disruption. Fuel prices soared at the fastest pace in decades, pushing trailing 12-month (TTM) U.S. inflation from 2.4% in February to a three-year high of 4.2% in May.

But the latest economic data show that Trumpflation is now about far more than just higher energy prices.

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

While headline inflation dipped from 4.2% in May to 3.5% in June, Core Personal Consumption Expenditures (PCE) hardly budged. Core PCE, which removes volatile food and energy costs, eased from 3.4% in May to 3.3% in June. According to an estimate from the Cleveland Fed's Inflation Nowcasting tool, it's expected to inch back to 3.4% in August.

The price stickiness of Core PCE indicates that inflationary pressures are broadening, as Carson Group's Chief Macro Strategist Sonu Varghese and Chief Market Strategist Ryan Detrick recently noted.

Of the 178 inputs to Core PCE, 52% had TTM inflation rates above 3% in June. In comparison, only 41% of Core PCE components were accelerating at 3% or greater when President Trump announced his "Liberation Day" tariffs in April 2025.

Looking at 178 components to core PCE and we continue to see inflation broadening out.

52% components with inflation over 3% YoY vs 41% in April '25 (Liberation Day). 33% and 25% when looking at 4% YoY. pic.twitter.com/i2bxI7PSrS

-- Ryan Detrick, CMT (@RyanDetrick) August 6, 2026

The Fed may be forced to act

While energy supply shocks are traditionally short-lived, the evolution of Trumpflation suggests that higher prices may stick around considerably longer than initially anticipated.

Entrenched inflation is a concern raised by several Federal Open Market Committee (FOMC) members recently, and was the impetus behind the three dissents recorded at the July 28-29 FOMC meeting. It's considerably tougher for the Fed to suppress inflation once it becomes broad-based.

The FOMC held rates steady, and the vote was 9-3.

Three bank presidents dissented in favor of a quarter-point rate increase.

It was the first time since 2016 that there were three dissents in the same direction over a policy change. pic.twitter.com/OBnwLJuUmr

-- Nick Timiraos (@NickTimiraos) July 29, 2026

If Fed Chair Kevin Warsh and his FOMC peers are forced to act and ultimately raise interest rates, it could mark the end of the Dow's, S&P 500's, and Nasdaq Composite's outsize returns. Though increasing lending costs wouldn't normally be a death knell for the stock market, raising interest rates amid a partially debt-financed artificial intelligence (AI) data center build-out may have serious consequences.

If the AI infrastructure build-out slows, even marginally, investors may be forced to adjust growth expectations and the historically elevated valuation premiums assigned to many of the companies leading the charge.

In other words, growing evidence of Trumpflation evolving into a broad-based problem is terrible news for equity markets and the central bank.

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.