He promised to reduce prices on day one. This promise, impossible to believe by anybody paying attention, was key to a plurality of voters rewarding him with a second term as U.S. president, the most powerful person in the world.

Donald Trump, the self-proclaimed astute businessman who has filed for bankruptcy multiple times, is proving once again that his skill at peddling snake oil and using the presidency to enrich himself and his children has nothing to do with ability to manage the American economy.

Trump has long urged his own Fed Chair appointee, Jerome Powell, to reduce short term interest rates. His reason was to goose the economy and give a shot to financial markets, making him look good, at least in the short run.

Why did the Fed refuse to follow Trump’s orders? Contrary to Trump’s illusions, and with his basic ignorance of economics, it would be counterproductive. The Fed’s goal was to reduce inflation to two percent. With inflation stubbornly remaining above the Fed’s target and the economy remaining relatively stable, lower interest rates would push inflation rates higher, harming consumers, surely not good for Trump in the longer run. But Trump is not known for thinking long run.

Trump’s tariffs that push prices higher demonstrate further Trump’s incompetence to manage the economy. He proposes measures that act against his own interests — and promises. With stubborn inflation remaining above the Fed’s target, Wall Street’s anticipation of multiple interest rate cuts for 2026 was fading, even prior to his Iran war.

With the U.S. Supreme Court affirming the imperial presidency, and the Republican-led congress obediently following Trump’s every command, Trump was furious that his own appointee would not obey him and reduce interest rates.

There followed threats to sack Powell, even though his term as Fed Chair was to end in May. Corporate CEOs and Wall Street in general love Trump’s tax gifts to the wealthy. Many, if not most, of them recognize the crucial importance of an independent Fed. Some of them actually spoke out as financial markets wavered over talk of sacking Powell. Most remained silent. Why criticize the president who made them even wealthier, in exchange for cuts in healthcare for mainstream Americans and reduced food aid for low income folks.

Trump was not going to let Powell off easy. He talked of sacking Powell and turned to investigating him over the costs of the new Fed building. There was no serious case against Powell; it only mattered that Trump was demonstrating his power to harass his enemies.

Powell held his ground on interest rates and was replaced by Trump’s nominee, Kevin Warsh, confirmed by the Senate along party lines. All Republicans approved and all Democrats, except one, opposed.

Warsh had earlier served as a Fed governor, at the time with a record of being hawkish, that is, reluctant to reduce interest rates. As a prospective Trump nominee, he changed his tune. Economists and many in the financial community now worry that a Trump appointee would sacrifice the crucial independence of the Fed. Those worries are well-founded.

As a prospective appointee, Warsh argued that artificial intelligence would boost productivity, thereby exerting downward pressure on inflation. And Trump’s tariffs? Nothing to worry about — only a one time drive-up of prices. All this even before the Iran War.

So now Warsh is Fed Chief. He inherits an economy vastly different than what Trump promised. Inflation has accelerated with no end in sight. The CPI rose to 3.8 percent, a three year high. Wholesale consumer prices, a different metric than the CPI, rose 6 percent in April, the largest increase since 2022. The Producer Price Index gained 1.4 percent in April, but the annual increase was 6 percent. Producer prices indicate production costs which will trickle through to consumers.

Trump’s illusion of a capitulation by Iran, surrendering to his demands, was just that — an unrealistic illusion with one of its effects now at the gas pumps. Even if the Strait of Hormuz were suddenly open, gas prices would remain stubbornly high for some time. Heavy crude used for jet fuel and diesel is stuck in the Mid-east. U.S. refineries are stepping in to fill the gap, at the expense of consumer grade gas, thereby further kicking up gas prices.

U.S. fuel reserves are being rapidly drawn down, leaving warehousing tanks below the five year average. Diesel reserves are harder hit with reserves down 11 percent and falling.

In addition to the constraint of oil not passing through the Strait of Hormuz and its effect on prices, is the restriction of fertilizer with its price increases. There is much concern over the follow-on effect on food prices. With increased price of fertilizer, producers will still use some, but less of it, thereby decreasing supply of the product and increasing prices. That’s basic production economic theory, but you don’t need a degree in economics to understand that. Practicing producers understand that with higher fertilizer prices, at an earlier point, the value of additional output will not cover the cost of the additional unit of fertilizer, and will use less of it. Again, basic economics, higher input costs reduce supply and increase product price.

(It’s true that additional food production costs result in higher product prices that are passed on to consumers. But some media personnel misleadingly say that “Farmers will pass the additional costs of production on to consumers.” Farmers are price takers, not price makers. Its impersonal market forces that is the cause and result, not farmers consciously “passing the costs on.”)

So here’s the trap that Trump has set for Fed Chair Warsh. Trump wants and expects his appointees to obey his orders, in this case, reduce interest rates. Warsh has already indicated that he just might do what critics worry about, that is, to sacrifice the independence of the Fed in order to please the president. He has already downplayed inflation prior to his appointment. With his confirmation his words are further worrisome. He asserts that the CPI was only a “rough take,” and he favors “trimmed averages,” whatever that means. Based on these measures he claims that the underlying trend of inflation is “somewhat improving” and looks “quite favorable.”

Really? Try convincing voters and financial personnel of that. For example Christian Floro, Market strategist of Principal Asset Management, worried that Walsh’s preferences for “trimmed mean and median inflation measures implies he sees underlying inflation pressures as materially cooler than headline data would suggest.”

The increasing inflation rate has wiped out recent wage increases, except for multi-million dollar annual U.S. CEO Pay that increased 20 times faster than worker’s wages this past year. Mr. Walsh can either follow Trump’s command to reduce rates, making inflation worse, or do what’s needed — the stage is more likely set for a possible rate hike, than a reduction — and take the heat from Trump.

Welcome to the Fed, Mr. Walsh. Enjoy the trap that Trump has set for you.

— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears monthly in the Monroe Times.