The Federal Reserve hasn’t met its 2% inflation goal in five years After more than five years of failing to do so, Federal Reserve leaders think they can shrink the rate of inflation to 2% by 2029 with just slightly higher U.S. interest rates. And most economists and financial professionals are now inclined to believe them. Infrastructure investing: A hedge against inflation and geopolitics?Play video: Infrastructure investing: A hedge against inflation and geopolitics?
The initial step was the first increase in interest rates in three years, and it came under a new chairman picked by President Donald Trump, who has demanded the Fed slash borrowing costs instead. Kevin Warsh, who took the helm at the central bank in May, regained badly needed credibility with the hike after a shaky start to his tenure. Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it.
I would like to receive updates and special offers from Dow Jones and affiliates. I can unsubscribe at any time. The effects of the Trump administration’s 2025 tariffs have mostly faded, but flareups in trade disputes like the one with Canada could create additional roadblocks on the path to 2% inflation.
The protracted war with Iran also has to end to allow oil and gas prices to return to relatively low preconflict levels. Surging energy prices pushed the rate of inflation above 4% again in the spring and are probably the biggest obstacle for the Fed. Quickly getting back to 2% might sound improbable, but many economists point out that the yearly rate of inflation, using the Fed’s preferred price gauge, had slowed to 2.3% in April 2025, just as Trump’s tariffs upended a decades-old global trading system.
Yet he also seemed reluctant to take the necessary steps. All of that began to change a few weeks ago. First Warsh gave a big speech at the end of August signaling he was unhappy about stubbornly high inflation.
Investors took that as a cue he really would raise interest rates. Then on Wednesday, the Warsh-led Fed pulled the trigger, raising a key short-term interest rate for the first time since mid-2023 and signaling at least one additional rate hike — and possibly more — to come. Higher interest rates are a time-tested tool to tame inflation.
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