Trump: Stupidity Causes Inflation, Not Growth
U.S. President Donald Trump stated after the release of August employment data that economic growth does not cause inflation, but stupidity does. He attributed the stock market's decline due to "good data" to the market's misunderstanding of inflation.
The Bureau of Labor Statistics reported a non-farm employment increase of 162,000, exceeding the market expectation of about 55,000. Trump called this an "excellent employment number" and said that based on logic from over twenty years ago, good news should boost the stock market; however, it has declined due to the market's belief that the Federal Reserve will raise interest rates. He also urged the new Federal Reserve Chair to lower rates when the market is strong, rather than "needlessly destroying the market."
He provided the interest rate calculation: for every basis point increase in U.S. rates, the annual interest on national debt increases by about $650 billion, advocating that the U.S. should have the lowest rates globally. After the employment data was released, the Chicago Mercantile Exchange's federal funds futures showed that the probability of a 25 basis point rate hike at the September 16 meeting rose from about 49% to about 58%. Inflation has been above the Federal Reserve's 2% target for 65 consecutive months.
He previously stated that a strong market or even an "extraordinary market" does not cause inflation, but stupidity does; good news should lead to market increases. When consumer prices rose to 4.2% year-on-year in June this year, he said, "I love inflation," but later clarified to the media that he liked "inflation not being higher," attributing the rise in energy prices to the situation in the Strait of Hormuz and Iran.
He defined inflation as a failure of judgment rather than overheating demand. The policy implication is that tightening should not occur when employment and growth are strong, and inflation can be dealt with later. The market pricing is contrary: a strong labor market gives the Federal Reserve more room to focus on prices, leading to an increase in stock discount rates.
Mechanically, this is an event-driven interest rate game. The narrative being bought is "growth is harmless, rates should be lowered"; what is being sold are duration assets and growth stocks reliant on easing. Funds are shifting from stocks to pricing that is more sensitive to interest rate hikes. Beneficiaries are short-duration cash and variable-rate creditors; those under pressure are overvalued tech stocks and federal debt reliant on low rates. Who is selling risk assets and who is buying hedges against rate hikes depends on whether the Federal Reserve follows employment data or the president's statements.
The simultaneous occurrence of better-than-expected employment and a declining stock market indicates that pricing power lies in federal funds futures, not in press conference wording.
Source: Public Information
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Trump's first term framed "good data should not lead to rate hikes" as a market failure, while in his second term he extended the same logic to "growth does not equal inflation, stupidity does." He is not seeking a Phillips curve debate but wants to change the Federal Reserve's reaction function to: when the stock market rises and employment is good, rates should go down. By the end of 2025, he had already written that "a strong market does not cause inflation," and in June 2026, when prices accelerated, he referred to inflation as a desirable number, creating a continuous line of political pressure: prices are attributed to predecessors or wars, while rates are the responsibility of the current chair.
The capital path ties Treasury interest payments and risk asset valuations to the same federal funds rate. For every basis point increase in rates, fiscal interest payments increase, while simultaneously lowering the present value of future cash flows. The White House's push to lower short-term rates effectively shifts costs from the Treasury to price risks; if the Federal Reserve follows employment data, it leaves costs in the stock market and real estate duration. Tax cuts, expanded deficits, tariffs, and energy shocks have already raised supply prices; demanding "good data must lead to rate cuts" shifts the burden of fiscal policy onto monetary policy.
This is analogous to the 1970s when the White House pressured the Federal Reserve to accommodate growth, and the post-2021 fiscal expansion faced supply chain disruptions. On the other side, Volcker used rates to suppress inflation expectations. We are currently in a standoff phase of "political cycles demanding easing, while inflation targets remain unmet"; this is not a technical replacement but a re-evaluation of central bank independence.
Structural changes belong to a transfer of pricing power. Employment numbers, which are growth indicators, have been rewritten in the futures market as rate hike probabilities. The mechanism is: when inflation is above target for several consecutive years, the labor market becomes the Federal Reserve's license to tighten; when the president calls this license stupidity, he aims to rewrite the issuer of the license. Once inflation expectations are politically declared rather than anchored by dot plots, the source of long-term rate fluctuations shifts from data to personnel.
ABAB News · Law of Cognition
- Good data falling in price indicates that pricing power is not on the podium.
- Calling inflation stupidity is an attempt to change the central bank's reaction function.
- Interest bills and stock prices are pinned to the same policy rate.