Why US interest rates can't fall: Trumpflation and AI

Trump has long pressed the Fed to cut rates, pointing to strong stock market gains, but his own policies have made cuts politically and economically difficult. After the Supreme Court struck down his 2025 Liberation Day tariffs, his administration reimposed new duties on imports from over 80 countries in July 2026, and the Iran war has blocked key oil shipping lanes, pushing energy and broader prices up. Meanwhile, the AI boom has created huge demand for hardware, giving suppliers the power to raise prices, which also feeds into consumer inflation.

The Fed, now led by Kevin Warsh, likely faces a tough choice: raising rates to fight entrenched inflation might slow the AI data-center build-out and could end the current bull market—which is already the second-priciest in history. The outcome hinges on whether these inflationary pressures ease on their own or force the Fed into a cycle of hikes. If rates stay higher, borrowing for AI projects and other investments becomes more costly, potentially weighing on economic growth and stock prices. The article suggests that Trump's vision of very low rates is incompatible with the reality of his policies and the AI-driven demand pressures.