Does President Trump understand money? Not money as in cash, but the supply of money, the price of money as measured by interest rates, and their impact on inflation? The answer would appear to be no after Mr. Trump called for lower interest rates on Wednesday -- the same day the Labor Department reported an increase in inflation for the third straight month.
"Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!!" Mr. Trump posted on his social-media site. The layers of intellectual confusion here are hard to parse, especially since higher tariffs will mean higher prices on the affected goods. But perhaps the President wants the public to look elsewhere when assigning blame for rising prices.
Yet if he's trying to blame the Federal Reserve, which controls short-term interest rates, he has the analysis backward. Rising inflation means the Fed must be more cautious in cutting rates. This is how financial markets read the news that the consumer-price index (CPI) rose 0.5% in January. Long bond rates rose sharply, with the 10-year Treasury note popping to 4.63% from 4.53%. This reflects market worry over inflation.
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The price increases were broad-based, hitting insurance, used cars and trucks, airline fares, medical care, haircuts, day care, sporting events, cable television, and more. Mr. Trump isn't responsible for this after only three weeks in office. But someone should tell him that the mistake goes back to the Fed's premature interest-rate cut of 50 basis points in September. Long bond rates shot up immediately and have stayed higher, but the Fed still cut another 25 points in November.
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As a political matter, an inflation revival may be the biggest threat to the Trump Presidency. Mr. Trump was elected as voters reacted to inflation and falling real incomes under Joe Biden. Real average earnings are flat over the last three months as inflation has bounced up. If this persists, Mr. Trump won't have a 53% job approval rating for long.
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