The man who promised to tame the inflationary beast is now patting it on the head. From the White House Rose Garden, President Donald Trump delivered a stunning declaration this afternoon: ‘I love the inflation. It shows we are winning.’ Winning what, exactly? The CPI data just released shows US consumer prices surging at an annualised rate of 5.2%, the fastest clip in three years. Bond markets are convulsing. The 10-year Treasury yield has spiked 12 basis points to 4.87%. Across the Atlantic, UK gilt yields are following suit, with the 10-year touching 4.65%. Sterling is taking a beating, down 1.2% against the dollar to $1.23. This is capital flight in the making.
The President’s apparent embrace of rising prices is a remarkable pivot for a man who campaigned on ending what he called the ‘inflation nightmare’ of the Biden years. But let us not forget: Trump has always viewed economic data through the lens of his own political standing. A booming economy, even one fuelled by hot money and fiscal incontinence, is good for incumbents. Never mind that the average American household is now spending an extra $300 a month on groceries compared to three years ago. Never mind that the Federal Reserve, once his loudest critic, is now being leaned on to keep rates low. The message is clear: Short-term gain, long-term pain.
For British investors, this is a nightmare scenario. The Bank of England has been fighting its own inflation battle, with headline CPI still hovering around 3.8%. A weaker pound only imports more price pressure, making it harder for Governor Bailey to cut rates. The gilt market is already pricing in two more hikes by August. The FTSE 100, heavily weighted towards international earners, might benefit from a weaker pound, but the domestic economy will suffer. UK housebuilders, retailers, and utilities will be squeezed as input costs rise and consumer spending stalls.
The irony is thick. Trump’s tax cuts and tariff policies are precisely the kind of fiscal stimulus that overheats an economy. His love for inflation is a signal to the markets that discipline is out the window. The bond vigilantes are sharpening their knives. If the 10-year Treasury breaks above 5%, we could see a repeat of the 2023 sell-off. And London, as ever, will feel the tremors first.
So here we are. The President of the United States is cheering on the very metric that erodes savings, punishes the poor, and destabilises global markets. It is a dangerous game of denial. The only question left is whether the Bank of England will have the spine to hold the line, or whether it too will bend to the political winds. I suspect the former, but my confidence is waning. Fasten your seatbelts.
