What a Trump Presidency Could Mean for Inflation
Written by
John Csiszar
Edited by
Levi Leidy
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Inflation has proven surprisingly resilient during President Biden’s term, even as the Fed has aggressively raised interest rates to their highest levels in 40 years to contain it. While CPI rates have fallen dramatically peaking at 9.1% in July 2022 to just 3.5% in April 2024, it remains stubbornly high, as the Fed’s target is just 2%.
But there’s no denying that inflationary pressures have eased significantly from their peak. Economists say several factors have contributed to this, from the Fed hiking rates to supply chain kinks being resolved to the passing of inflationary pressures due to pandemic-era stimulus programs.
In other words, whether or not he was directly responsible, inflation seems to finally be under control in the final year of President Biden’s term.
If President Trump returns to office in November, however, will his policies continue to keep inflation under control or will the CPI reverse and go higher?
Here are some of the factors that could play a role under a second Trump term:
New Fed Chair
Although President Trump appointed Jerome Powell as Fed chairman during his term, many analysts feel there’s little to no chance that he will return to his post when his current term expires in 2026.
While the president supported Powell at first, when the Fed Chair refused to cut interest rates at Trump’s urging, he tweeted out, “My only question is, who is our bigger enemy, Jay Powell, or Chairman Xi?”
While a new chairman that bends more to Trump’s will could result in lower interest rates, that may or may not be what the economy needs. According to Harvard economist Jason Furman, “If Trump undermined [the Fed’s] independence and their credibility — which he has proven he is quite likely to try to do — that could make it very difficult to keep inflation under control.”
China Trade Proposals
One of the signature policies of President Trump’s term in office was imposing steep tariffs on a wide variety of Chinese goods.
Despite the negative economic effects of the Chinese tariffs that even conservative think tanks like the Tax Foundation identified, Trump has vowed to boost these tariffs even more if he wins a second term, perhaps even imposing a blanket 10% tariff on all goods entering the United States.
This type of action would increase trade barriers and create higher prices for American customers, according to The Washington Post.
Immigration/Deportations
In September 2023, Trump told a crowd that he was planning “the largest deportation operation” in U.S. history if he was elected again. As the Associated Press notes, the Trump administration was “more hostile to immigration than any administration in decades.”
Whether or not Trump would succeed in this mass-scale deportation is unknowable at this point, as he did not remove as many people from America as he promised during his presidential term.
But according to The Washington Post, pro-business leaders played a big role in limiting Trump, fearing that it would create restrictions on the workforce.
If Trump were to succeed in massive deportation in a second term, the increase in worker shortages that are already contributing to inflation could spike inflation even more.
Extending Tax Cuts
The Tax Cuts and Jobs Act, introduced during Trump’s term, significantly lowered taxes for most individuals and businesses and has been immensely popular.
The provisions of the TCJA are due to expire in 2025 unless they are extended, which Trump has said he would do.
While most people enjoy lower taxes, keeping rates lower for longer increases inflation, as consumers and businesses have more disposable income and therefore more demand for products.
Changes in the Energy Sector
Trump has promised that if he is reelected, he will both expand domestic energy production and trim back energy regulation, actions that may both contribute to reduced inflation.
Trump’s energy plan is essentially the opposite of Biden’s, planning to expand fossil fuel production and reduce or even eliminate “clean energy” initiatives spending, like solar and wind.
Reductions in Government Spending
One of Trump’s actions that could result in contained inflation is his promised reductions in government spending.
Although it’s not entirely clear just what spending Trump will cut, at varying times he has even suggested reducing entitlements like Social Security, although his campaign quickly walked that back.
One thing is clear, however: Trump thinks the Biden administration spends too much money, and he will likely reduce government expenditures to at least some degree. This should help relieve inflationary pressures.
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