President Donald Trump has kept up his drumbeat of criticism against Federal Reserve Chairman Jerome Powell for refusing to cut interest rates despite months of public badgering. The tension inside the Fed has now spilled into the open. At the July Federal Open Market Committee meeting, two Governors dissented — the first time since 1993 that more than one Governor has broken ranks at the same meeting. That rare dissent alone pushed markets to price in a near-certainty of a rate cut in September.
Then came Tuesday’s consumer price report for July. The headline: year-on-year inflation stayed at 2.7%, exactly the same as in June — but a shade below the 2.8% that economists had expected. In the current climate, that “softer-than-expected” number was enough to amplify calls for lower rates. Never mind that the Fed’s inflation target is 2%, and we are running well above it.
The bad news on inflation does not end there. “Core” CPI inflation, which excludes food and energy, accelerated to 3.1% last month from 2.9% in June, the highest figure since February. If that was not enough to feed fears of higher inflation, the Producer Price Index published on Thursday showed that measure of inflation at 0.9% month-on-month in July compared with the 0.2% that the consensus had anticipated. Last month’s PPI inflation was the most elevated since June 2022.
The acceleration in inflation suggests that wholesalers have started to pass on the higher cost due to the tariffs rather than take the hit themselves in the form of reduced profit margins. Since the PPI is often considered to be a precursor to CPI data, expect the higher PPI to be reflected in consumer prices during the next several months. PPI data notwithstanding, investors continue to expect the Fed to lower rates next month.
Why? Hopes for a rate cut are encouraged by the weak jobs numbers for May, June and July leading investors to believe that the Fed will have to ease policy. However, the Federal Reserve cannot meet both its objectives — employment and price stability — by manipulating just one policy instrument, viz., interest rates. As discussed in last week’s SriKonomics, the risk of easing policy in the presence of elevated inflation would be increased likelihood of stagflation.
Persistently high inflation rates even before the full impact of tariffs is felt is only one of the macroeconomic uncertainties for investors. In addition, the risk that economic policy decisions will be swayed by political pressure is increasing. And the data that is published may be interpreted — or even massaged — to be consistent with the preferred political or market narrative. We now turn to these two aspects of overall policy.
Earlier this month, the President fired Bureau of Labor Statistics Commissioner Erika McEntarfer after her department reported that the economy added only 73,000 jobs in July — far below consensus forecasts — and sharply revised down May and June payroll figures. The BLS has been operating with reduced staff since the administration’s government-wide spending cuts, a more plausible explanation for the magnitude of the revisions than any ill will on Dr. McEntarfer’s part. Doesn’t matter. The latest jobs statistics were not consistent with the administration’s message that tariffs will raise the pace of economic growth and the messenger — the BLS Commissioner — who brought the opposing message had to go.
McEntarfer’s replacement, E.J. Antoni, is an outspoken supporter of the President’s tariff strategy who has previously referred to the BLS as “BS.” His appointment sends a clear message — future economic data releases may be expected to align more closely with political preferences than with statistical reality. Investors would be wise to remember that, especially when they consider purchases of Treasury Inflation-Protected Securities (TIPS), whose payouts depend directly on the integrity of reported inflation.
Meanwhile, the Fed’s internal dynamics are being pulled into the political arena. News reports suggest that President Trump and Treasury Secretary Scott Bessent are considering not just three or four potential successors to Powell when his Chairmanship ends next May, but eleven individuals — including current and soon-to-be voters on the FOMC. In such a climate, it’s fair to ask: if you were one of those potential candidates, would you stick to the Fed’s inflation mandate and keep the policy interest rate steady (or even raise it), knowing that public criticism of the move from the President would eliminate your chances at the Chairmanship or even damage career opportunities in the private sector?
The Fed’s independence has always relied less on legal safeguards than on the shared norm that monetary policy is insulated from partisan interference. That norm is under siege. Combined with the growing risk of politically motivated statistics “management,” the credibility of both U.S. economic data and monetary policy is in jeopardy.
For investors, that’s not just a Washington drama — it is a direct challenge to decision-making in bond markets, currency trading, and inflation hedging.
Dr. Komal Sri-Kumar
President, Sri-Kumar Global Strategies, Inc.
Santa Monica, California
www.srikumarglobal.com
@SriKGlobal
August 16, 2025
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.
This publication is for information purposes only. Past performance is no guarantee of future results. While the information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. Any opinions expressed are current only as of the time made and are subject to change without notice. Sri-Kumar Global Strategies, Inc. assumes no duty to update any such statements. Any holdings of a particular company or security discussed herein are under periodic review by the author and are subject to change at any time, without notice. This report may include estimates, projections and other "forward-looking statements." Due to numerous factors, actual events may differ substantially from those presented. This publication is not to be used or considered as an offer to sell, or a solicitation to an offer to buy, any security. Nothing contained herein should be considered a recommendation or advice to purchase or sell any security. Sri-Kumar Global Strategies, Inc., or its employees or clients may have positions in securities or investments mentioned in this publication, which positions may change at any time without notice. ©Copyright 2025 -- Sri-Kumar Global Strategies, Inc., 312 Arizona Avenue, Santa Monica, CA 90401; Telephone +1-310-455-6071
Eventually they will believe their own lies and fall into the ditch they dug.