During his inauguration speech, President Trump promised to use his federal powers to “defeat what was record inflation and rapidly bring down costs and prices.”
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Many voters are optimistic that Trump’s economic policies will bring relief now that he occupies the White House again. However, there are several factors outside of the President’s control, including supply chain disruptions, commodity prices and monetary policy set by the Federal Reserve, which also contribute to inflation.
So, can Trump lower inflation in 2025? GOBankingRates spoke with experts to find out.
Inflation Trends
Inflation measures the general increase in the price of specific everyday items like a carton of milk or eggs over time, usually a year. The current inflation rate is 2.9%, slightly higher than 2.7% in November and a record high of 9.1% in June 2022.
“Inflation trends were mild and around the longer-term average during Trump’s first term until the COVID-19 pandemic,” said Wayne Winegarden, an economist at the Pacific Research Institute. “This was mostly due to monetary policy and fiscal spending that, while problematic, had not hit the extraordinary reckless levels that were associated with the COVID-19 pandemic.
“It was the huge surge in spending by both the Trump and Biden administrations that caused the inflationary surge.”
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The President’s Role
President Trump will likely use his fiscal policies to influence inflation.
The president has repeatedly called for the need to control excessive government spending and created the Department of Government Efficiency (DOGE) after his election to identify areas of waste, fraud and abuse.
In addition, President Trump announced plans during the first day of his second term to deregulate the oil and gas industries, increase energy production and seek a “broad-based government approach to bringing down inflation.”
“If President Trump follows through with his talk about imposing significant spending control and spending efficiencies, then that will help make the Federal Reserve’s job of controlling inflation easier,” Winegarden said.
“The caveat being that he did not exert fiscal discipline during his first administration and has indicated that he is not considering any reforms to the largest expenditure categories (Social Security and Medicare). This raises concerns that budget deficits will persist, which makes the Fed’s job controlling inflation harder.”
The Federal Reserve’s Role
One of the biggest factors outside of the president’s control is the Federal Reserve. The independent agency controls inflation by influencing the availability and cost of credit in the economy.
For example, the Federal Reserve can increase interest rates to discourage borrowing and spending to slow down economic activity when inflation is high. The agency can also reduce interest rates to make it easier for consumers to borrow money for things like a car or home during times of low inflation or a recession.
“The Federal Reserve’s control over short-term interest rates will have the largest impact on inflation,” said Dan Casey, founder of Bridgeriver Advisors and Panic Proof Retirement. “The economy seems to be just fine at the higher rates we are currently in.”
The Impact of Tariffs
Trump has not yet imposed tariffs on China, Mexico, Canada, and European countries as he promised during his successful campaign and after the election.
A recent Wall Street Journal article indicated Trump is likely to direct his administration to study the impact of universal tariffs. At the same time, other news reports said Trump could impose 25% tariffs on Mexico and Canada as soon as February.
“Tariffs that Trump plans to implement could be inflationary, at least in the short term,” Casey said. “However, currencies have already begun to fluctuate and could ease that pressure.
“Also, China, for instance, has an economy that is struggling. So, they may absorb some, if not all, of the tariffs to continue selling to the American consumer.”
However, Trump’s trade policies could affect other countries’ willingness to hold on to the increasing amount of U.S. debt, which is a significant inflationary factor outside of the president’s control.
“Should the demand for this debt falter, that will create upward pressure on interest rates,” Winegarden said. “The Federal Reserve will then have a much more difficult environment and face growing pressure to moderate the sagging demand for bonds with greater inflationary pressure.”
Conclusion
So, can Trump lower inflation in 2025? The answer is “it depends.”
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: Can Trump Lower Inflation in 2025?
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