Voter dissatisfaction with the economy, particularly the high cost of living after post-COVID inflation, helped bring Donald Trump back to the White House.
Inflation peaked at 9.1 percent in June 2022, driven by disrupted supply chains, stimulus spending, and global energy prices. Despite recovery efforts, many Americans still felt worse off by the 2024 election.
Trump's campaign promised to "end inflation" and "make America affordable again," but some policies could raise prices.
Additional tariffs and mass deportations might increase wages but also production costs. His plans to extend tax cuts could stimulate spending but, if they increase the deficit and federal debt, also drive up interest rates.
However, Trump's focus on domestic energy production and resolving conflicts like the Russian-Ukraine war could ease inflation by reducing energy costs. Meanwhile, deportations could offset inflation by reducing economic activity, even if they lead to higher wages.
With Trump making such a clear pledge on inflation and the cost of living, Newsweek sought the opinions of leading economists. We asked them: Do you expect the rate of inflation to rise or fall under Trump? This is what they said.
Alan S. Blinder, Gordon S. Rentschler Memorial Professor of Economics and Public Affairs, Princeton University
This is a harder question than it may seem on the surface.
Trump's signature economic policies—tax cuts, tariffs, mass deportations...—are all inflationary, to be sure. But the magnitudes are not likely to be huge. Think 1 percent more inflation, not 5 percent more.
That amount may get buried by the trend toward lower inflation that's been going on for a while now and I expect to continue.
The sleeper here is the incipient attack on the Federal Reserve. If that looks serious, expected inflation could skyrocket quickly, dragging actual inflation behind it.
Robert J. Gordon, Professor of Economics, Northwestern University
Though Trump won the election primarily because of voter discontent with higher prices under Biden, Trump's own policies will raise the inflation rate, both because of tariffs and the deportation of illegal immigrants.
Consumers may not notice the tariffs at first, since imports are infrequently purchased items like cars, toys, and clothing. Prices of groceries and gas will be little changed.
The deportation will raise business costs—for instance, half of the workers at Wisconsin dairy farms are illegal immigrants.
Emi Nakamura, Chancellor's Professor of Economics, UC Berkeley
We know from the experience of the tariff increases during Trump's first term in office that widespread increases in tariffs are likely to have large effects on import prices, though retail margins may also take a hit in insulating consumers from their effects. Two recent papers document this.
Trump has also proposed large tax cuts that will likely lead to large increases in deficits, with inflationary effects.
The biggest inflationary threat from the Trump presidency relates, however, to Fed independence. Investors will be watching carefully whether the Fed retains the independence that has allowed it to push back against inflationary government policies since the 1980s.
If this is eroded, the U.S. may start to see self-fulfilling concerns about the longer-run trajectory of U.S. inflation show up in the bond market, through higher longer-term interest rates.
This, in turn, could lead to a run-up in the cost of U.S. debt, and an even greater potential role for independent monetary policy in preserving the era of low and stable inflation.
Mark Gertler, Henry and Lucy Moses Professor of Economics, New York University
1. Trump is inheriting a strong economy, much better than he left Biden four years ago. Unemployment is low, inflation is very close to the 2 percent target and growth appears robust and sustainable. It's on the media to make clear that Trump does not deserve credit for what he inherited.
2. If Trump carries out his plans for tariffs and deportation, then I would expect a combination of higher inflation and lower output, the exact outcome depending on how the Federal Reserve responds to the inflation increase.
Both the tariffs and the deportation can be thought of as supply shocks. Tariffs increase firms' costs and firms will try to pass on to consumers. The deportation will reduce labor supply, thus forcing up wages and prices.
3. Another consideration is that if Trump engineers tax cuts without offsetting adjustments in revenues, that will add further to inflationary pressures, not to mention a potential debt crisis.
John H. Cochrane, Rose-Marie and Jack Anderson Senior Fellow, Hoover Institution
I don't know if inflation will rise or fall under Trump.
Most of the common stories, such as most you mention, make the common error of mistaking a relative price change—one thing gets more expensive than others—for a change in the price level, the price of everything, which constitutes inflation.
Tariffs will make imported goods more expensive than other goods, but the price of other goods might fall, so no overall inflation. (Those who complain about tariffs should be honest that corporate tax increases have the same effect.)
Drilling might make energy cheaper than other goods, but the price of other goods might rise instead, so no overall disinflation.
Inflation is the value of money, and only happens with fiscal or monetary policy. If we don't have extra money to pay the higher costs of tariffs, then the price of other things must fall and there is no rise in the price level.
All of these policies should be evaluated on whether they increase overall economic growth. They are "supply" policies, good and bad, not "demand" policies, and only extra demand causes inflation.
Inflation comes only from loose monetary and loose long-run fiscal policy. If Trump's pro-growth policies, especially deregulation, work and lead to rising tax revenues, then inflation will likely come down or be quiet.
Newsweek