Working Families Foot Trump’s Bill Twice as Fed Hikes Rates for First Time Since 2023
Working Families Foot Trump’s Bill Twice as Fed Hikes Rates for First Time Since 2023
President’s claim that his affordability crisis is “fake” does little to ease real economic pain facing Americans
Today, the Federal Reserve raised the federal funds rate to 3.75% to 4.00%, the first rate hike since July 2023. Trump has repeatedly and publicly pressured the Fed to lower rates, insisting that the United States “should be paying the lowest interest rate in the world.” And yet, his never-ending war with Iran and his chaotic tariffs have driven inflation high enough that his own pick for chairman raised rates anyway, in a unanimous vote – a decision that will lead to higher borrowing costs for families and small businesses but does little to combat high prices from Trump’s economic mismanagement.
Trump has already made life less affordable for families and stated as recently as last week that the affordability crisis is “fake.” Prices are up 3.4% from a year ago, gas is at $4.37 per gallon, and diesel is at a record high, pushing up prices for all transported goods, including groceries. Now, families will face higher interest rates on mortgages, credit cards, and auto loans, on top of paying high prices for everyday essentials. Working families are footing the bill twice, and there is little relief on the horizon. The Fed now forecasts higher inflation this year than it projected in June, and no rate cuts until 2028.
Groundwork’s Chief Economist Breyon Williams shared his reaction:
“Trump can deny, disparage, and deflect from Americans’ economic reality all he wants, but there’s no hiding the truth: his recklessness in the White House has pushed working families’ budgets to their breaking point. Under his watch, inflation has skyrocketed, prices on essentials like gas and groceries have emptied wallets, and the labor market has lost steam. Today’s decision from the Federal Reserve confirms Americans’ fears of continued price pains to come, and its own forecast now says families will not see borrowing costs go down until 2028.”
BACKGROUND
Trump’s tariffs and war with Iran are keeping inflation well above the Fed’s target.
- Inflation was already running hot before the latest price shocks. The Personal Consumption Expenditures (PCE) – the Fed’s preferred measure of inflation – showed prices rose 3.7% over the past year in July, above the Fed’s target of 2% inflation. The Consumer Price Index (CPI) rose 3.4% over the past year in August, and core prices saw their largest monthly increase since April. Both the PCE and CPI reports predate the latest surge in gasoline and diesel prices and the 50% tariffs imposed on Canadian imports in late August.
- Tariffs are pushing up core inflation. Tariffs have added 0.2 to 0.4 percentage points to core PCE inflation as of July, according to Minneapolis Fed economists. The Fed’s own August Beige Book reported prices rising in all twelve districts, with businesses citing tariffs alongside Trump’s war with Iran.
- More consumer inflation is already in the pipeline. Wholesale inflation rose 5.4% over the past year in August, up from 4.8% in July and the sixth straight month above 4%. Notably, wholesale diesel is up 78% from a year ago, and steel mill products are up 23.4%. These producer costs will land on store shelves for groceries, household appliances, and other essential consumer items in the months ahead.
Higher rates make it more expensive for small businesses to expand and hire, threatening an already fragile labor market.
- Job growth has slowed under Trump. Growth has averaged just over 50,000 jobs per month over the past year, less than half the 2024 pace of 122,000 a month.
- Hiring is concentrated in a single sector. Health care jobs have accounted for 35% of all job growth in 2026. With major Medicaid cuts still to come from the Republican budget law, even that source of hiring could come under pressure.
- Workers who lose their jobs are staying unemployed longer. More than one in four unemployed workers have been out of work for at least six months. The average jobless spell now lasts 26.3 weeks, the longest since February 2022, with 1.9 million people unemployed for six months or more.
The Fed’s own forecast says families should not expect relief.
- The Summary of Economic Projections shows:
- Higher inflation is expected. PCE inflation is projected at 3.7% for 2026, up from 3.6% in June. Core inflation, which removes the volatile categories of food and energy, is projected at 3.4%, up from 3.3% in June. The Fed stated that “inflation remains elevated” and that uncertainty is due, in part, to “geopolitical developments”.
- Borrowing costs will remain high until 2028. The median official now expects the federal funds rate will be 4.1% at the end of 2026, up from 3.8% in June, and still 4.1% at the end of 2027, up from 3.6%. Sixteen out of 18 participants project at least one more rate hike this year, keeping mortgage, car loan, and credit card costs elevated for families.
