President Donald Trump's policies include a series of measures that could create new inflationary pressures in the coming years.
A new debate among economists is precisely what the price effect would be if he were to win.
President Trump's ambitious plan includes 60% tariffs on Chinese goods and 10% tariffs on other global trading partners. He has also promised further tax cuts and immigration crackdowns, both of which could lead to inflation.
With the future path of inflation remaining uncertain, any of these could put new upward pressure on prices.
The Federal Reserve's efforts to curb inflation have stalled this year, forcing policymakers to shift their stance toward raising long-term interest rates.
The central bank decided on Wednesday to keep interest rates at a 23-year high following a series of better-than-expected inflation figures.
Economists Ryan Sweet and Bernard Yaross of Oxford Economics looked at the issue and found that a “full-blown Trump scenario” would see prices rise by 0.5% to 1% from 2026 to 2027 as policies take hold. It turned out that there is a possibility.
This is on top of the inflation rate before the Fed does anything.
The report says that President Trump's policies could not only increase inflation but also depress real GDP in the United States.
Jarosz said in a recent briefing that President Trump has proposed a series of business-friendly provisions, but added that “the boost to the economy from these fiscal reforms is outweighed by the overall cost to the economy.” Ta.
Some of President Trump's allies acknowledge the possibility of higher prices, but others say the impact will be minimal. Meanwhile, left-wing groups predict it will cost American families thousands of dollars in additional costs.
Forecasts have been rising in recent months, according to Adam Posen, director of the Peterson Institute for International Economics. he estimated President Trump's 10% tariff plan alone would boost inflation by “2 to 3 percentage points.”
President Trump's backlash: Experts 'don't know what they're talking about'
Trump and his allies have downplayed the concerns. The former president recently objected to some studies on tariff costs, saying in a recent interview with Time that the experts behind those studies “don't know what they're talking about.”
“I don't think it will be inflationary,” he added of the proposed tariffs, but rather the impact would be “a lack of loss for our country.”
President Trump's advisers also often point out that his tariffs in 2017 and 2018 did not cause a spike in inflation.
Robert Lighthizer is President Trump's trade representative and could return to the top post in 2025. He wrote in his recent memoir that President Trump's tariffs had a variety of positive effects on the United States, and that “all of this was accomplished without any meaningful inflationary effect.” ”
Still, President Trump's proposal to impose tariffs in 2025 far exceeds those he implemented in 2017 and 2018. President Trump has also floated other new ideas, such as devaluing the dollar, which could further impact inflation.
The former president ultimately wants to use tariffs to decouple the U.S. and Chinese economies, but in the short term, his proposed tariffs would be imposed on U.S. companies importing products. That will happen.
Past studies have shown that U.S. consumers are bearing the brunt of these cost increases.
If President Trump pushes for another tax cut, demand pressure and the amount of money in the U.S. economy will increase, potentially accelerating inflation. He wants to extend all the tax cuts he signed into law in 2017, as well as new ones, such as lowering the corporate tax rate from 21% to 15%.
Finally, economists say President Trump's hard-line immigration policies could lead to inflation by reducing labor market supply and raising costs for businesses in the form of wage inflation.
Forecasting the possibility of an “inflation recovery”
But most studies of how President Trump's policies affect inflation and economic growth have focused on tariffs.
Another recent report from Capital Economics predicted that President Trump's tariffs could subtract up to 1.5% from GDP and “trigger a rebound in inflation, potentially forcing the Fed to raise rates again.”
Paul Ashworth, the group's chief North American economist, wrote in a note to Yahoo Finance that it is difficult to derive a specific inflationary effect on tariffs because it is unclear exactly what level President Trump will ultimately raise them to. he added.
In fact, in a recent interview with TIME, President Trump first said that tariffs could be “more than” the current proposal, but added in the next breath that “they could be a derivative of that.” .
There are also questions about whether President Trump, if re-elected, could undermine the Fed's independence or even try to remove Fed Chairman Jerome Powell. Developments on this front could further complicate the inflation situation in President Trump's second term.
Allies of Mr. Trump and Mr. Biden have also offered their own predictions about the path inflation may take.
The Coalition for a Prosperous America, a group that supports higher tariffs, recently acknowledged that prices could rise. But the report assumed that the net effect would be positive due to economic growth, increasing real household income by nearly $8,000.
Meanwhile, the left-leaning Center for American Progress has crunched numbers on a 10% tariff, which it says would add about $1,500 a year to the typical American household.
President Trump has repeatedly indicated that these policies, from tariffs to tax cuts, would be central to his 2025 agenda if he wins.
Perhaps the key question, in addition to the close race between President Trump and President Joe Biden, is how the Congressional elections will play out.
If Democrats control either the House or the Senate in 2025, many of President Trump's plans could be blocked or scaled back. Divided government under either Biden or Trump is often noted as a likely positive outcome for markets.
For Oxford Economics, it also ran a “limited Trump” scenario in which it would be forced to compromise with more targeted tariffs.
President Trump is clearly unhappy about this, but economists may be more optimistic.
The Oxford model found that the inflationary effects of a “limited Trump” scenario would be less pronounced, with price pressures around one-third of those in the “full-scale” scenario, with a positive impact on real GDP until 2028. .
Ben Werschkul is Yahoo Finance's Washington correspondent.
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