U.S. prices hit a three-year high, and the rebound in inflation has sparked heated discussions. U.S. President Trump and the Federal Reserve have expressed their views and policy inclinations regarding the current inflation situation.

Trump publicly stated that he is not worried about the current rise in inflation, saying that the current data is generally acceptable. He also explained that his remarks had been misinterpreted and emphasized that the current inflation is not out of control.

He believes the geopolitical conflict between the US and Iran is the main driver of rising prices, and that once the conflict ends, oil prices and overall inflation will fall rapidly, potentially even returning to pre-conflict levels. Meanwhile, the Federal Reserve is about to hold its first interest rate decision since taking office, with newly appointed Chairman Kevin Warsh carefully weighing the direction of monetary policy in the face of inflation data that has deviated significantly from the long-term target of 2%.

Prior to this, Trump had repeatedly called on central banks to lower interest rates in order to offset the pressure on the economy.

Meanwhile, Trump recently posted a statement saying that the United States will launch a severe strike against Iran tonight. He stated that Iran's navy, air force, radar, air defense, and all other defensive systems, as well as most of its offensive capabilities, are no longer in existence. He added that at some point in the near future, the United States will seize Kharg Island and other key oil infrastructure sites, and will gain complete control of Iran's oil and gas market, just as it did in Venezuela. Trump claimed that this move has been extremely effective for both Venezuela and the United States.

Current Situation Analysis: Inflation Rises Across the Board, Multiple Pressures Emerge

Data released by the U.S. Bureau of Labor Statistics showed that the May CPI rose 4.2% year-on-year, continuing to climb from 3.8% in April and marking the largest increase in three years.

The core driver of this inflation surge is rising energy prices. The ongoing military friction between the US and Iran has disrupted the global crude oil supply chain. Iran's blockade of the Strait of Hormuz, coupled with multiple US military actions, has directly led to persistently high international oil prices, with Brent crude oil prices consistently significantly higher than pre-war levels.

As a result, energy costs in the United States have risen by nearly 25% year-on-year. Gasoline prices across the country have surged since the US launched its strikes against Iran, with the average price of regular gasoline now reaching $4.15 per gallon. The US CPI has now risen for three consecutive months, and the upward pressure on energy prices is gradually spreading outwards, with prices for various services and goods, such as airfares, healthcare, entertainment, and telecommunications, rising simultaneously, further increasing the burden on residents' lives.

Compared with historical data, current inflation is still lower than the peak of 9.1% in mid-2022. However, with the US midterm elections approaching in November, high inflation has become a major public opinion problem for Trump, and his political opponents have taken the opportunity to criticize his related statements.

Furthermore, economists predict that even if the conflict in the Middle East subsides quickly, shipping in the Strait of Hormuz and the global supply chain will be difficult to recover rapidly, and the tight supply of crude oil is likely to continue until 2027, making it difficult to completely eliminate inflationary pressures in the short term.

Heather Long, chief economist at the Navy Federal Credit Union, said inflation is putting real financial strain on low- and middle-income families.
Alexander Tomick, an associate professor at Boston College, pointed out that expectations of interest rate hikes have suppressed gold prices.

Interest Rate Outlook: Rate hike expectations are rising, with a 65% probability of a rate hike by the end of the year.

However, Trump's statement that he likes inflation has undoubtedly sent a signal to the market. Firstly, it may be that the US president let slip that inflation is indeed beneficial for repaying government debt. Secondly, he believes that the impact of inflation is not serious, which also suggests that the market does not need to expect interest rate hikes.

According to the Federal Reserve's regulatory logic, when inflation significantly exceeds the target, raising interest rates is an important means to curb price increases. By increasing financing costs and tightening market liquidity, it can effectively suppress consumer demand and thus control inflation.

Combining the May inflation data with the strong non-farm payroll data, opinions within the industry are divided. Some economists believe that the rebound in inflation in a single month is insufficient to support an interest rate hike, while others believe that raising interest rates is a reasonable choice.

The Federal Reserve’s benchmark interest rate is currently maintained in the range of 3.5% to 3.75%. The market generally expects that interest rates will not be adjusted immediately in the short term, but the stickiness of inflation has fueled expectations of tightening.

Current market estimates suggest that there is a 65% probability that the Federal Reserve will begin raising interest rates by the end of the year.

Given the current inflation rate, if the US-Iran issue can be resolved before the end of the year, the Federal Reserve may find it difficult to start a new round of interest rate hikes by the end of the year, which will have a lasting impact on various global financial markets.

Meanwhile, since Iran's oil cannot be shipped out, the US may actually turn around and discuss with Iran helping Iran sell its oil, because Iran's oil depots are really overflowing.