Growth Up, Core Inflation Down: The Fed’s Rate Case Just Got Hard
By Peter Navarro | RealClearMarkets | Septemeber 30, 2026
The latest Trumpnomics data just ran over the Federal Reserve’s rate-hike karma.
Growth was revised sharply upward. Core inflation came in below expectations. Consumer spending remains strong. Business investment is powering ahead. A Trump manufacturing renaissance is contributing meaningfully to growth.
That is a difficult combination to square with the Warshian notion that the economy requires repeated doses of higher interest rates.
Start with GDP.
The Bureau of Economic Analysis just revised second-quarter real GDP growth from 1.5 percent to 2.2 percent. That is a whopping seven-tenths upward revision and well above expectations.
First-quarter growth was also revised upward, from 2.1 percent to 2.5 percent.
More important than either headline number is what economists call final sales to private domestic purchasers — consumer spending plus private fixed investment. This is one of the cleanest measures of underlying private-sector demand.
It grew at a 4.6 percent annualized rate in the second quarter.
Consumer spending alone rose at a 3.8 percent annualized pace. Real gross domestic income was revised up to 2.6 percent. And the August spending numbers showed real consumer expenditures jumping another 0.6 percent in just one month.
Now comes the other half of the story: inflation. Is it rising because of the Trumpian growth? That would be a hard no.
The Federal Reserve’s preferred gauge, the Personal Consumption Expenditures price index, showed headline inflation at 3.4 percent year-over-year in August. Core PCE came in at 3.0 percent.
Both were below expectations.
Month-to-month core inflation rose only 0.2 percent, versus the 0.3 percent markets expected.
Even more revealing is the recent trend. Over the three months through August, core PCE inflation was running at a 2 percent annualized pace. Headline PCE was running at just 1 percent.
That is hardly evidence of an economy careening into an inflationary ditch.