Trump and Treasury Secretary Bessent are talking nonsense on inflation

Treasury Secretary Scott Bessent and President Trump have asserted that inflation is coming down and prices are falling, but recent data and real‑time indicators contradict that view: the CPI rose 0.31% from August to September (an annualized 3.79%), three‑month annualized inflation is roughly 3.62%, the Cleveland Fed nowcast is near 3.9%, companies expect about 3.3% over the next 12 months, while five‑year Treasury breakevens are around 2.4%. The persistence of above‑target inflation continues to erode purchasing power—particularly for retirees—and pressures bond valuations, even as 10‑year yields have eased this year (from 4.58% to 4.13%) partly because the Fed is keeping short rates higher for longer. Market participants should therefore rely on incoming price data and bond‑market signals rather than administration rhetoric when assessing inflation and policy risk.

Analysis

Treasury Secretary Scott Bessent and President Trump have publicly suggested that inflation is “coming down,” but headline data and near–real‑time indicators do not support that claim. The official CPI rose 0.31% between August and September (an annualized 3.79%) and 0.38% between July and August (annualized 4.79%); the three‑month annualized pace is about 3.62% and the Cleveland Fed’s Inflation Nowcasting tool estimates a recent annualized rate near 3.91%. Corporate surveys expect roughly 3.3% inflation over the next 12 months, while five‑year Treasury breakevens are only about 2.4%, signaling a material gap between market inflation expectations and near‑term data.

Persistently above‑target inflation is eroding purchasing power—especially for retirees—and pressuring nominal bond valuations despite the 10‑year Treasury yield falling from 4.58% to 4.13% year‑to‑date. That yield decline has occurred in the context of the Fed keeping short‑term rates “higher for longer,” which complicates duration bets and leaves policy‑rate risk elevated. The October official CPI release is missing due to the government shutdown, adding short‑term uncertainty and elevating the informational value of nowcasts and breakevens.

Administration rhetoric on disinflation is not yet reflected in price series or bond‑market signals; investors should therefore prioritize incoming CPI prints, Cleveland Fed nowcasts and Treasury breakevens when reassessing risk and positioning. Absent clear, sustained deceleration in the data, exposure to nominal long‑duration assets and fixed real incomes remains vulnerable to renewed inflation surprises and rate volatility.

Key Decisions for Investors

• Do not rely on administration statements—monitor CPI monthly prints, the Cleveland Fed nowcast and five‑year breakevens as primary signals before increasing duration exposure
• Consider shortening nominal duration or using interest‑rate hedges given sticky near‑term inflation readings and the Fed’s higher‑for‑longer stance
• Increase allocation to inflation‑protected securities (TIPS) or other real assets because market breakevens (~2.4%) are well below recent nowcasts and survey‑based inflation expectations (3.3%–3.9%)
• For retiree and income portfolios, prioritize instruments with CPI linkage or floating cash flows rather than locking into long‑dated nominal bonds