Donald Trump once promised the US population not to wage wars and to ensure lower consumer prices. The opposite happened. Because inflation continues to rise, a further interest rate hike is becoming more likely.
Inflation is rising sharply in the USA and is putting US President Donald Trump's Republicans under pressure before the midterm elections. Consumer prices rose by 3.7 percent in September, even more than the 3.4 percent in August, according to the Labor Department in Washington. Economists surveyed by Reuters had only estimated a figure of 3.6 percent. The main price driver is the rise in fuel prices as a result of the Iran war.
“The tense global geopolitical situation continues to put a strain on private households in the USA,” was the assessment of NordLB analyst Tobias Basse. According to the expert, you are particularly feeling this at the pump, where the price of gasoline has risen by 9.1 percent compared to the previous month. The rather tense financial situation for many consumers is likely to require households to make savings in other areas. Consumer sentiment is currently “almost catastrophically weak,” said Basse.
According to economist Dirk Chlench from Landesbank Baden-Württemberg (LBBW), US inflation, fueled by the oil price shock, is heading for a rate of over four percent in the next few months. These are extremely bad omens for Trump's Republicans for the midterm elections on November 3rd, in which they have to fear for their majority in Congress. Trump has his word with his voters: He returned to the White House in January 2025 with a promise to get inflation under control. At the same time, he has repeatedly called on the independent central bank to cut interest rates, to no avail.
However, this counteracted the ongoing strong rise in prices in September with the first interest rate increase in around three years. Different signals are coming from the Federal Reserve regarding the future course. The Fed can wait to see how the financial markets and the economy develop before taking another step, said Fed Director Michelle Bowman. The head of the Boston Fed District, Susan Collins, had previously stated that she believed the US central bank would have to raise interest rates again before the end of the year in order to reduce high inflation.
The central bank also pays close attention to the so-called core rate of inflation, which excludes the volatile prices for food and energy. This figure rose to 2.6 percent in September, after 2.4 percent in August.
“Even if the core inflation rate increases somewhat more strongly, there is still no talk of clear second-round effects,” said chief economist Thomas Gitzel from the Liechtenstein-based VP Bank. He was referring to a development feared by central banks, in which prices and wages feed off each other and solidify inflation.
The Fed raised its key interest rate last month by a quarter of a percentage point to a range of 3.75 to 4.00 percent. According to the minutes of the meeting, several monetary authorities expressed the view that the current key interest rate was not or only slightly restrictive - i.e. that it was not or hardly slowing down the economy. Most central bankers assessed that a further interest rate hike by the end of the year would probably be appropriate. This also corresponds to the monetary authorities' interest rate outlook published by the central bank. However, Fed Chairman Kevin Warsh did not take part. He wants investors to align themselves with the fundamentals and thus receive an unfiltered signal.
