Federal Reserve officials are facing mounting scrutiny after new business survey data undercuts their justification for keeping interest rates elevated—offering strong support for the Trump administration’s push to lower borrowing costs. The Atlanta Federal Reserve reported Wednesday that businesses now expect just 2.0 percent cost increases over the next year, matching the post-pandemic low and directly contradicting claims that tariffs would fuel inflation.
President Trump and his economic team have repeatedly argued that the central bank is holding rates unnecessarily high, restricting growth and job creation. The latest data hands them a potent argument. The business expectations measure, based on responses from executives directly responsible for pricing, is widely regarded by economists as one of the most reliable predictors of future inflation. A 2021 Cleveland Fed study showed it outperforms consumer surveys and market indicators.
The findings are particularly significant given the recent trajectory. In April 2025, inflation expectations spiked to 2.8 percent in response to Trump’s aggressive tariff policy. But in the months since, expectations have fallen in six of nine months, dropping back to the Fed’s 2 percent target. Firms report current cost increases at just 2.3 percent, and their forecasts show no sign of tariff-driven inflation.
This marks a clear divergence from the Fed’s stated concerns. Chair Jerome Powell has warned of lingering inflation pressure from Trump’s trade policies, even after three rate cuts in 2025. But the January business expectations suggest those fears are misplaced. Businesses appear to have absorbed the impact of tariffs and adjusted supply chains without triggering inflation.
The data undermines the Fed’s position and reinforces the administration’s argument that the time has come for more aggressive rate cuts. The Trump White House has avoided direct pressure on Powell but has been vocal about the damage tight policy could inflict. Officials point to stable inflation, slowing growth, and improving wage dynamics as reasons to act.
The business survey highlights that inflation expectations are not just low—they are exactly aligned with the Fed’s target. Historically, such conditions have allowed central banks to support the economy more freely. When firms expect stable prices, they are less likely to raise them preemptively, reducing the risk of runaway inflation.
Fed officials have built their credibility around data-dependence. If they ignore this data point, they risk appearing disconnected from the actual economy or, worse, politically motivated. The survey also reflects a broader trend: business expectations have returned to their pre-election level, indicating confidence in the Trump administration’s economic approach.
The Federal Reserve meets next on January 28–29. While markets expect no immediate rate move, the business inflation data raises pressure for officials to shift their stance. With inflation expectations anchored at 2 percent and no sign of upward pressure, the rationale for tight policy is fading fast.
