A hard-fought battle to control inflation appears to be succeeding, but economists warn the upcoming presidential election could alter that trajectory, according to reporting by The Wall Street Journal.
The decline in inflation rates, aided by higher interest rates, improved supply chains, and increased workforce participation, could face new challenges depending on policy decisions by either Donald Trump or Kamala Harris.
While both candidates' growth-oriented policies might impede further inflation reduction, economists, including conservative advisers, express particular concern about Trump's proposed measures. His plans include implementing broad tariffs on imports, deporting workers, and pressuring the Federal Reserve to lower interest rates.
"Put them all together, these levers are moving more in an inflationary direction. I'm legitimately worried about inflation worsening in 2025," Brian Riedl, a former Republican Senate aide now at the conservative Manhattan Institute, told The Wall Street Journal. Marc Short, former legislative affairs director in the Trump White House, indicated that inflation risks could be amplified in a second Trump term, potentially leading to renewed tensions with the Federal Reserve.
The economic landscape for a potential second Trump term would differ significantly from his first presidency. Recent bond market activity suggests investors are pricing higher deficits and inflation under a Trump victory.
Harris has outlined her approach to addressing living costs through increased home construction, addressing alleged price gouging, and expanding child tax credits. While she pledges to offset new spending with revenue increases, she hasn't proposed major deficit reduction measures.
The Committee for a Responsible Federal Budget estimates Harris would add approximately $3.5 trillion to the deficit over ten years, while Trump's proposals would add $7.5 trillion.
RETWEET this. Every day. Until Election Day.
Anyone anywhere in America who tells you Donald Trump will be better for the economy needs this tweeted at them IMMEDIATELY. pic.twitter.com/BIICYq4upX
— Seth Abramson (@SethAbramson) October 28, 2024
Ohio Sen JD Vance, Trump's running mate, expressed concern about international market reactions to a second Trump presidency. "Do the bond markets, do the international investors...do they try to take down the Trump presidency by spiking bond rates?" Vance said in an interview with conservative political commentator Tucker Carlson.
The combination of higher deficits and inflation-stoking immigration and tariff policies could trigger a chain reaction in bond markets, where investors might demand higher yields for Treasury securities risk.
