President Donald trump ramped up his attacks on Federal Reserve Chair Jerome Powell on Thursday, calling him a "numbskull" and demanding steep rate cuts to ease the $600 billion annual interest bill on U.S. debt. Now, with inflation cooling faster than expected, rate cuts could be on the Fed's monetary policy table as soon as September, according to Citi economists.

"We continue to pencil in 125bp of consecutive rate cuts from the Fed starting in September," Citi economists wrote, pointing to a rapid slowdown in core inflation as the key catalyst for policy easing.

Trump's latest broadside came after a duo of inflation reports this week showing softer-than-expected consumer and producer inflation data. The president said that "lowering rates by 2 percentage points would save the U.S. $600 billion per year, but we can't get this guy [Powell] to do it." He added, "We're going to spend $600 billion a year, $600 billion because of one numbskull that sits here [and says] ‘I don't see enough reason to cut the rates now.'" Trump also signaled he'd support higher rates if inflation were rising, but insisted, "it's down, and I may have to force something."

Citi economists' add to credence to the growing calls for sooner rate cuts, pointing to May's core CPI rising just 0.13% month-on-month—softer than both Citi's forecast and consensus.

"Softer underlying inflation dynamics should make Fed officials more comfortable with the idea that higher prices from tariffs will not lead to persistent inflationary pressures," the economists said, especially as the labor market continues to loosen.
While some upward pressure from tariffs are expected later this summer, Citi sees limited pass-through to consumer prices due to soft demand. "There was very little evidence that tariffs boosted consumer prices in May," they added, with services prices also remaining subdued and shelter inflation continuing to slow.

The economists' inflation forecasts show core PCE tracking at just 2.6% year-on-year in May, with further moderation expected as home prices fall and new rents remain soft. They warn that monthly inflation data will be closely watched for any signs of tariff impact, but for now, the trend remains downward.

With inflation cooling faster, and markets betting the rate-cut cycle to resume in September, Trump may not have long to wait for the monetary policy relief he's been loudly demanding.

Source: Investing.com