Why Trump could Make Inflation Worse
Inflation has been a persistent concern for many Americans under President Biden, and the worry is that it may continue to be a problem under Donald Trump’s presidency. Recent data indicates that consumer prices rose by 2.9% in December compared to a year ago, marking the third consecutive month where annual inflation has seen an uptick. While this figure is lower than the four-decade high of 9.1% reached in mid-2022, it still falls short of the Federal Reserve’s preferred target of 2%.
Inflation is Hitting where it Hurts Most
Americans have been grappling with rising inflation costs, particularly on essential goods. In December, prices for gas and food surged, with egg prices soaring by almost 37% from the previous year. Other costs, such as car insurance premiums, also saw notable increases. While wage growth has outpaced overall inflation, the rise in prices for essential items remains a burden on households. Some relief can be found in stabilizing rent prices and a slowdown in core inflation, excluding food and energy costs.
The Fed is Still Trying to Get Inflation Down
Despite making significant progress in reducing inflation, the Federal Reserve remains concerned about the current inflation rate. The Fed is likely to maintain higher interest rates for an extended period to combat inflation, even after cutting rates by a full percentage point in the past year. A strong labor market, with 256,000 jobs added last month, provides some flexibility for the Fed to keep rates higher and hope for an economic rebound.
Why Trump Could Make Inflation Worse
One of the main reasons for the Fed’s cautious approach to rate cuts is the potential impact of Donald Trump’s economic policies. Trump’s threat to impose tariffs on imports from major trading partners like Mexico, Canada, and China could lead to higher prices on a wide range of goods for American consumers. Additionally, mass deportations of immigrants could drive up labor costs, further fueling inflation. The uncertainty surrounding Trump’s policy decisions creates a sense of anticipation and apprehension among Americans, who await clues about the future direction of the economy under his administration.
