President Donald Trump has declared victory over inflation, saying that prices are falling and that the Federal Reserve’s rate cut confirms the turnaround. Yet in reality, many Americans still contend with elevated costs for essentials—leaving markets questioning whether inflation is truly under control or merely being downplayed.

Persistent Inflation at Odds with Political Messaging

In public statements, Trump has repeatedly asserted that inflation is “defeated,” citing declining mortgage rates and grocery prices. However, the data tells a more nuanced story. Consumer prices rose approximately 2.9% in August 2025 over a year earlier, with core inflation (excluding food and energy) near 3.1%. Inflation has resumed upward momentum in three of the past four months, undermining claims that price pressures are gone. (AP)

Tariff-driven cost increases—on items such as furniture, coffee, appliances, and industrial goods—continue to push upward on producer and consumer prices. Some companies are passing on added import costs directly to end consumers, rather than absorbing them themselves. (ABC News) In many sectors, price adjustments are still underway, reflecting lagged effects of supply-chain bottlenecks and trade policy.

Fed Cuts Rates—but Officials Remain Wary

In September 2025, the Federal Reserve trimmed its key interest rate by 25 basis points, bringing the target range to 4.00–4.25%. The decision was supported by several Fed committee members who emphasized risks to labor markets, but internal divisions emerged over how aggressively to ease further. (AP)

While the rate cut signals a willingness to respond to economic cooling, many Fed officials continue to caution against overconfidence. Some warn that inflationary momentum may be broader and more persistent than acknowledged, particularly with tariff effects and supply shocks still unfolding. (Reuters) The Fed’s credibility is on the line: if inflation rebounds, its restraint strategy may face heavy criticism.

Markets, Consumers, and the Credibility Test

Markets have responded with a mix of relief and skepticism. The rate cut sparked modest gains in equities, especially in rate-sensitive sectors such as real estate and consumer discretionary goods. However, volatility remains elevated as traders weigh the risk that inflation proves stickier than expected.

For consumers, the dissonance is real. Grocery prices continue to climb (2.7% year-over-year in August), durable goods that had been declining for decades are now rising again, and companies in multiple industries hint at further price hikes ahead. (ABC News) The persistence of these pressures fuels frustration and skepticism about political claims of inflation’s defeat.

In Israel, where many tech and industrial firms rely on U.S. supply chains or export through global intermediaries, renewed cost pressures or Fed policy shifts could ripple outward. Currency fluctuations, cost of capital, and input inflation may all become important for export margins and investor returns here.

Over coming months, markets will scrutinize incoming indicators—especially the Consumer Price Index, employment data, and corporate guidance—to discern whether inflation is subsiding or resurging. The Fed will also be tested on credibility: will it pivot quickly if core inflation remains elevated? Risks include a policy error (either easing prematurely or tightening late) and an inflation rebound that undermines confidence. Observers should keep an eye on tariff developments, wage growth trends, and credit conditions as the contest between inflation narratives and real-world numbers continues to unfold.