Affordability Still Major Issue
Inflation Continues to Dog US Consumers
President Donald Trump’s State of the Union address on February 24 — lasting one hour and 47 minutes, the longest in history — covered a wide range of policy initiatives. But two themes stand out for purposes of affordability, the issue most likely to shape the November midterm elections: First, the President’s claim that core inflation had fallen to 1.7% in the first year of his administration. Second, his reaction to the February 20 Supreme Court ruling striking down his global tariff program.
In the speech, the President stated, “My administration has driven core inflation down to the lowest level in more than five years, and in the last three months of 2025, it was down to 1.7%.”
Publicly released data tell a different story.
The Bureau of Labor Statistics reports that core consumer price index (which excludes food and energy) rose 2.6% year-over-year in November and again in December, and by 2.5% in January. While January’s figure is indeed the lowest since early 2021, it remains well above 1.7%. Moreover, the Federal Reserve’s preferred measure, core PCE inflation, showed inflation running at 3% year-over-year at year-end 2025, not 1.7%.
The biggest disappointment came yesterday from the core producer price index, often considered to be a precursor to the CPI. It accelerated sharply to 3.6% year-on-year in January from 3.3% in December.
Even where inflation has moderated, price levels remain elevated. Affordability concerns are not driven solely by the current rate of change; they reflect the cumulative increase over several years. Particularly relevant is that shelter inflation still remains at 3%. Unfortunately for households, “inflation is down” has not translated to “life is cheaper.”
On a related issue, the Supreme Court ruled that the statute used to justify the administration’s global tariffs does not authorize the President to impose tariffs under those circumstances. The Court held that the International Emergency Economic Powers Act (IEEPA) could not serve as a tariff authority. President Trump criticized the decision but asserted that the tariffs would remain in place under alternative statutory authority and that congressional approval would not be necessary.
The President’s reaction introduces further uncertainty for businesses and consumers. If tariffs are reinstated under new authority, import costs would rise again. If tariffs lapse, some goods may see modest price relief. And the legal back-and-forth itself creates investment hesitation and postponement of employment decisions.
Another related issue emerged in the week — questions about Federal Reserve independence following remarks by National Economic Council Director Kevin Hassett, and his subsequent withdrawal of those comments.
Shortly after the Court ruling and amid renewed debate over inflation data, Hassett suggested publicly that Federal Reserve staff who produced a study on impact of the Trump tariffs should be “disciplined.” His criticism related to the study’s conclusion that the impact of the tariffs had been mostly on US consumers, and not on foreign exporters as the administration has long maintained.
Hassett’s comment sparked concern in financial markets and among former central bank officials, who interpreted it as a potential challenge to Federal Reserve independence.
Within days, Hassett withdrew his criticism, stating that he did not intend to suggest punitive action against career Fed staff and reaffirming respect for institutional independence. “The Fed’s independence extends to its research. It and it alone must decide what research to conduct to further its mission,” he said in a new statement.
Why does the Hassett episode matter? First, because the Fed’s credibility is largely based on its perceived independence from political pressure. Second, the public needs to have confidence in the honesty — and unbiasedness — of the staff’s economic analysis. And finally, the stability of institutional norms are just as important.
Given that tariffs function economically as a tax on imports, their continuation or expansion directly affects affordability — particularly for goods with significant import content. Affordability is shaped not only by inflation itself, but by expectations of future inflation. If markets perceive political pressure on the central bank, risk premiums would rise, borrowing costs would increase, and affordability worsen through elevated mortgage and credit rates.
Even a withdrawn comment can have signaling effects. Expect inflation to be the governing domestic economic issue through the end of the year.
Dr. Komal Sri-Kumar
President, Sri-Kumar Global Strategies, Inc.
Santa Monica, California
www.srikumarglobal.com
@SriKGlobal
February 28, 2026
Sri-Kumar Global Strategies, Inc. advises multinational investors and sovereign wealth funds on global risk and opportunities. Dr. Sri-Kumar is regularly featured on business TV and Radio media, and is a frequent speaker in global financial centers on major topics that affect markets and investments.
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