Retirees, Trump and the Fed- beware

Lower interest rates are not great for many retirees and neither is higher inflation or simply higher prices.

But our dear leader is only concerned with the interest payments on the higher federal deficits he has created. And guess what, he isn’t concerned about your Social Security either.

Excerpt from Morningstar by By Brett Arends

It’s almost impossible to overstate how important the independence of the Federal Reserve is to retirees, and everyone else for that matter. It is the cornerstone of price stability. It was a political Fed that let inflation run amok in the 1960s and 1970s and an independent Fed, under legendary Chairman Paul Volcker, who crushed that inflation in the 1980s. For example, if you were to buy a long-term bond paying 4% a year and inflation averages 2% a year, you are ahead of the game. If inflation averages 3%, you are in trouble, and if it averages 4% or higher … well, do the math. 

Donald Trump has already claimed that real inflation is effectively 0%, even though the official rate is 2.7%. And he has demanded that the Fed slash short-term interest rates by at least three percentage points, from the current 4.25% to 4.5% to around 1% or even lower. One can only imagine what the situation would look like – or will look like – if he gets his way. 

But this isn’t the only worrying news for retirees. 

Even while Powell was hinting at interest-rate cuts, he also explained how inflation is rising and how Trump’s arbitrary import taxes, known as tariffs, are causing it. 

This isn’t me saying this – it’s Jerome Powell himself. 

“Turning to inflation, higher tariffs have begun to push up prices in some categories of goods,” he said. “Estimates based on the latest available data,” he noted, indicate that prices rose 2.6% in the 12 months through July, while the so-called core inflation rate, excluding volatile food and energy prices, rose 2.9% – well above the Fed’s 2% inflation target. Goods prices, which were falling in 2024, are now rising, he added. 

“The effects of tariffs on consumer prices are now clearly visible,” Powell said. “We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts.” 

And those higher prices “could spur a more lasting inflation dynamic,” he added. This is the feared inflation spiral last seen in the 1970s – when higher prices drove workers to demand higher wages, which in turn led to even higher prices. 

In these circumstances, rational savers should logically demand more, not less, interest on their money to compensate for lending. Instead, interest rates actually fell Friday, amid growing Wall Street euphoria about the prospects of an imminent rate cut by the Fed next month.

Source: Morningstar 8-22-25