While running for president, Donald Trump pledged he would tackle the scourge of inflation that sparked a cost-of-living crisis for many Americans, while simultaneously leading the country to record wealth and prosperity—a difficult balancing act to pull off.

Now, just three days into his new administration, he’s already pressuring Federal Reserve Chair Jay Powell to stimulate the economy by reducing the cost of borrowing. This comes in spite of the U.S. central bank’s concerns that recent consumer price data is coming in hotter than it would like.

“I’ll demand that interest rates drop immediately,” Trump told the World Economic Forum (WEF) via webcam on Thursday. 

Generally accepted economic theory states the best way to clamp down on pricing pressure is a restrictive monetary policy—that is, higher interest rates. 

That was precisely the course of action the Fed took after low interest rates during the pandemic fueled a rise in consumer prices not seen in decades. Powell’s central bank hiked the Fed funds rate by a total of five percentage points over little more than a year—the fastest rate hike in 40 years.

Economists moreover fear that by resuming his attacks on Powell, a hallmark of his economic agenda during his penultimate year in office, Trump will undermine trust in the political independence of the Fed. 

This alone could spook the Treasury market. While the Fed generally influences the short-dated debt, it’s bondholders who control the long end of the yield curve.

A revolt against Trump’s meddling could drive up rates on 30-years, the benchmark that lenders use when issuing fixed-rate mortgages. Already the bond market is refusing to follow the playbook handed to them by policymakers, with yields jumping this month to around 5% as appetite for fixed-income securities drops.

Progress on inflation coming to a stall

This comes on top of Trump’s threat to hike import tariffs, which generally have an inflationary impact in the near- to mid-term until supply chains can respond with more goods sourced domestically.

Indeed Fed officials recently cited their concern over data coming in hotter than expected. U.S. central bankers believed upside risk to inflation had therefore increased, according to the minutes from the December meeting of the FOMC, the Fed’s policy-setting body.

“Several observed that the disinflationary process may have stalled temporarily,” the minutes read. “A couple of participants judged that positive sentiment in financial markets and momentum in economic activity could continue to put upward pressure on inflation.”

The newly sworn-in president does have one important lever at hand that could help put a lid on rising costs. 

Trump told WEF participants that he would unlock a wave of investment in fossil fuels that would lower the input prices for virtually all goods and services, in the process ditching the Biden administration’s renewable energy push.

Even assuming he can accomplish a material reduction in producer prices upstream, it’s unclear whether these lower costs will trickle down to the consumer. They could simply be pocketed as extra profit by corporate shareholders.

Speaking to WEF participants on Thursday, Trump nevertheless maintained his stance that he remains laser-focused on bringing consumer prices down. 

“On day one I signed an executive order,” he said, “directing every member of my cabinet to marshal all powers at their disposal to defeat inflation and reduce the cost of daily life.”