Inflation has been a top concern for Americans, and it was a significant factor in the 2024 presidential election, helping Donald Trump regain the White House.
With Trump’s return, the question now is: will inflation persist or even rise under his policies?
From tariffs on imports to possible changes at the Federal Reserve, Trump’s plans could have direct effects on consumer prices and purchasing power.
Americans are hopeful that Trump will achieve strong growth without stoking further inflation.
Yet, if his policies drive prices higher, he might quickly fall out of favor.
What could Trump’s economic plans mean for inflation?
Trump’s past and proposed economic policies point to areas where inflation might increase.
One significant element of his campaign has been his commitment to high tariffs on imports, especially from China.
Trump has suggested a 60% tariff on Chinese goods and tariffs on imports across various sectors.
According to the National Bureau of Economic Research, tariffs on imports tend to raise consumer prices as companies pass on the increased costs to customers.
This could lead to higher prices for everything from electronics to household goods, affecting the everyday expenses of Americans.
Another inflationary risk is Trump’s potential influence over the Federal Reserve.
If he pressures the Fed to keep interest rates low or aligns it with his own economic goals, it could lead to more fiscal stimulus than typical policy suggests.
Lower rates encourage borrowing and spending, adding more money to the economy, which can drive prices up.
In 2024, the 30-year Treasury bond yield saw its largest increase in two years, indicating market expectations of inflation due to possible government spending under Trump.
This market behavior suggests that some traders believe Trump’s policies may lead to inflation continuing or even increasing.
Trade wars, tax cuts, and a Fed under control could quickly see inflation spiral out of control.
A focus on deregulation and jobs
One of Trump’s campaign promises was to reduce regulations in major industries like energy, banking, technology, and airlines.
Deregulation could lower operating costs, boost job creation, and lead to growth in sectors like fossil fuels, finance, and even cryptocurrency.
Oil and gas companies, for instance, have already seen a rise in share prices, as the market expects a pro-drilling administration. But how would this affect inflation?
While these policies may encourage business expansion and job creation in the short term, they can also contribute to inflation indirectly.
For example, in an economy that’s already at low unemployment, more job openings in deregulated sectors could drive wages up as companies compete for labor.
Wage increases can lead to rising costs of goods and services, which would put pressure on prices.
Some analysts point out that deregulation might initially ease costs for businesses, but the impact on consumer prices is less certain.
Deregulation alone won’t control inflation if other factors, like tariffs and monetary policy, are also pushing prices higher.
The labor impact of strict immigration policies
Trump’s proposal for mass deportations of undocumented immigrants could lead to labor shortages in industries heavily dependent on immigrant labor, such as agriculture and construction.
According to the American Farm Bureau Federation, around 50% of farmworkers in the U.S. are undocumented immigrants.
A labor shortage in agriculture would likely reduce food supply and increase food prices.
In industries like construction, a similar effect could occur.
Without enough labor, construction costs might rise, which could make housing even more expensive at a time when mortgage rates are already high.
These increases would impact inflation by raising costs in sectors that play a large role in the economy.
However, Trump’s tariffs on imports aim to encourage domestic manufacturing and bring more jobs back to American soil.
If successful, this could offset some of the job losses in other sectors by creating new employment opportunities in industrial manufacturing.
But it’s unclear whether these manufacturing jobs would be enough to cover labor gaps in agriculture or construction, two of the industries most affected by a possible deportation surge.
A controlled Central Bank?
In his first term, Trump often criticized the Fed for raising interest rates, claiming it hindered economic growth.
If he attempts to appoint Fed officials who are more aligned with his economic views, it could steer Fed policy toward keeping interest rates lower than usual, despite inflationary risks.
This approach could expand the economy by boosting spending and investment, but it risks driving prices up if inflation goes unchecked.
The Federal Reserve has typically been a source of stability, adjusting rates based on data and inflation targets.
However, if Trump exerts significant influence, there is a chance the Fed might prioritize economic growth over price stability.
This could potentially create what some analysts call a “Trump-Whim” economy, where inflation risks increase if policies aren’t data-driven.
Inflation vs. unemployment: which matters more to Americans?
When it comes to economic priorities, Americans appear to care more about inflation than unemployment.
Inflation affects everyone because it erodes purchasing power across income levels, while unemployment has a more concentrated effect on those directly impacted.
High inflation makes basic goods more expensive for the entire population, which can drive widespread dissatisfaction.
Studies have shown that inflation played a major role in previous elections, such as Richard Nixon’s win in 1968 and Ronald Reagan’s victory in 1980.
Both of these elections took place during times of high inflation, showing that voters respond strongly when their purchasing power is at risk.
Trump’s administration would need to carefully balance its goals of job creation and deregulation with inflation control, as Americans may not tolerate policies that lead to rising prices.
Overall, the American people have high expectations for Trump to address inflation and strengthen the economy, but his policies may present trade-offs.
For instance, while increased tariffs might support American manufacturers, they would also increase consumer costs, directly impacting inflation.
Deregulation could create jobs but may also contribute to wage-driven inflation. Labor shortages from immigration policies could raise the costs of food and housing.
Ultimately, Trump’s success in meeting voters’ economic demands will depend on his ability to manage these inflationary pressures while supporting growth and job creation.
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