How 12 people you probably don’t know knocked down Donald Trump

In the end, all the bullying from President Donald Trump meant little to 12 largely unknown people who a few hours ago increased American short-term interest rates.

As expected, the dozen members of the Federal Open Market Committee – the arm of the US central bank that sets monetary policy for the world’s largest and most important economy – pushed its key interest rate up by a quarter percentage point to 3.75 to 4 per cent.

And, as expected, Trump responded with all the nuance and understanding of the economy, inflation and monetary policy that he’s displayed since being returned to the White House.

“Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World - BY FAR,” he thundered on Truth Social.

It immediately highlighted one of Trump’s ongoing problem. The Federal Reserve is setting interest rates to deal with inflation in the US. It has nothing to do with the creditworthiness of the US, and everything to do with American inflation.

Creditworthiness, or trust in the Trump administration, is its own problem. Interest rates on US government debt have been surging because of America’s huge deficit (now $US40 trillion and growing), its huge deficit (at least $US2 trillion this year), high inflation, uncertainty over the war against Iran and the call on investors by companies behind the AI infrastructure revolution.

After the Fed’s announcement, the interest rate on US government debt lifted to around its highest level since 2007.

But Trump continues to fight a political case. Normally, this is the president’s strong suit.

Among those who backed the increase were former governor and presidential bete noire, Jay Powell , and Lisa Cook, the woman who Trump is trying – and so far failing – to kick off the Fed.

Then there was new Fed chair Kevin Warsh, who had to prove to financial markets (and investors in the US) that he was serious about tackling inflation.

The Fed’s decision does not mean interest rates have to go up here in Australia.

But Warsh’s point about inflation won’t be missed by his Australian counterpart, Michele Bullock, who markets believe is likely to deliver her own interest rate rise in less than a fortnight’s time.

Inflation remains too high and, as the RBA often notes, the only way it can bring it to heel is via higher interest rates.

The causes for that inflation can be debated. Oil at $US106 a barrel, for instance, can’t be dismissed by those who want to blame the government for all of the economy’s ills. From building a new home to buying milk at the local Woolies, there’s no denying the importance of this inflationary pulse that’s outside the control of Australia.