If you want to be a pessimist, the worst economic news for President Donald Trump during his first full year back in the Oval Office is that the Federal Reserve cannot possibly justify slashing the interest rate charged by banks to borrow from each other overnight.
If you want to be an optimist, you just have to look at why the federal funds rate is so static. After all, the Fed left it unchanged at the 3.5%–3.75% target range in its January 2026 meeting. That was in line with expectations, after three consecutive rate cuts last year that pushed borrowing costs to their lowest level since 2022.
Despite perpetual panic over a supposedly deteriorating labor market, a second shoe has yet to drop, with the unemployment rate humming near historic lows at 4.3%. And although net job growth across 2025 was mild — the Committee for a Responsible Federal Budget found the economy added a net 359,000 jobs — that stems from the White House’s intentional crusade to slash 324,000 jobs from the federal government. The Department of Government Efficiency’s moves in early and mid-2025, haphazard and arbitrary at times, brought federal employment to its lowest level in 60 years.
And although those DOGE reforms failed to target the entitlements that drive federal spending, the budget deficit for the first third of the current fiscal year is down 20% from when Trump took office. That’s in large part due to Trump’s deregulatory executive agenda and the supply-side reforms of his signature domestic achievement, the tax-cutting One Big Beautiful Bill Act.
Such deficit reduction is arguably the silent yet primary factor driving inflation’s overdue decline. While inflation remains above its 2% maximum target, consumer price index inflation, which was at 3% by the end of Joe Biden’s presidency, fell to 2.4% in January. And core CPI, which was at 3.3%, has fallen to 2.5%. Core CPI, the preferred inflation measure of the Fed because it excludes the volatile categories of food and energy, is now at its lowest point since Biden lit the economy on fire by signing his cynically named “American Rescue Plan” into law.
The labor market isn’t anywhere near recession territory, nor is it far too hot as it was during the most inflationary period of Bidenomics. And inflation is finally coming down in steady, sure steps, without a corresponding cooling of economic growth. In fact, the reverse is true. Economic growth is running north of 4% while productivity growth is closer to 5%, the secret sauce necessary to sustain economic expansion amid an aging, shrinking labor force.
In other words, this is a Goldilocks economy. And a Goldilocks economy means that the Fed simply has no good reason to slash the federal funds rate. Statutorily, the Fed’s job is to balance maximizing employment with maintaining price stability. A 4.3% unemployment rate is historically within a stone’s throw of the undeniable point of full employment, and if anything, inflation remains slightly to the upside of price stability.
Even if Trump’s preoccupation with the Fed is futile, his reasoning is rational. Cost of living remains the top concern of voters, and Trump incorrectly believes that if the Fed slashes the federal funds rate, the rates of consumer borrowing and mortgages, as well as on the treasuries that finance our $38 trillion debt, will also fall. In fact, as we’ve discussed here at Tiana’s Take, the reverse has been true recently.
But that doesn’t mean that Trump should abandon his affordability initiative; rather, he should refocus it on the supply side. Already, real average weekly wages are up 1.9% throughout his first year back in office. After the 4% decline in real paychecks throughout Biden’s presidency, that’s about the single most important and tangible form of relief that any successor could give a price-painful public. As inflation continues to come down and economic growth accelerates, real earnings growth should compound over time.
PAYROLL JOBS NUMBERS REVISED DOWN BY OVER A MILLION FOR 2025
Secondarily, Trump should focus on the literal supply side of the single issue driving consumer concerns over affordability: housing. While the partisan chasm in the housing shortage shows that Democratic zoning and environmental restrictions are disproportionately worsening housing prices to crisis levels, that doesn’t mean the federal government is toothless in the face of a predominantly local issue. The easiest and lowest-hanging fruit for Trump would be to force the Senate to take up the House-passed Housing for the 21st Century Act and sign it into law.
Trump inherited the worst inflationary crisis in half a century, but a year back on the job, he’s steered the ship into pulling off our first, undeniable soft landing since World War II. The Goldilocks economy is not too hot for panic from investors, but not too cold for panic from the Fed. The president should let go of his inordinate focus on the Fed and learn to love an economic landing that’s just right.
Tiana Lowe Doescher (@TianaTheFirst) is an economics columnist for the Washington Examiner.