The incredible recovery from the pandemic over the past four years has not been enough to keep Democrats in the White House. Currently, Donald Trump is making a comeback against the backdrop of many economic winds, and voters who care about their pocket money are paying attention to how Trump will respond.
The economy the next president will inherit is not perfect, but he is eagerly positioning himself as the solution to its flaws.
Unavoidable expenses such as housing, childcare, and medical costs remain prohibitively expensive for countless families, and President Trump made a point during the campaign with a loud rallying cry: “Trump will fix it!” He organized a meeting to vent his grievances. signs. Within his first year in office, he promised to cut energy costs in half and free up more housing by forcing millions of immigrants out of the country.
But the prices of many everyday goods and services have already fallen significantly, and workers’ incomes, on average, more than offset the increases. Since inflation peaked at 9.1% in June 2022, the annual pace of consumer price growth is now less than 3%, and for months just shy of the Federal Reserve’s target rate of 2%. It remains at a level that exceeds that of the previous year.
But December’s 2.9% figure is the latest sign that the last mile of inflation’s path could be bumpy.
After hitting 2.4% in September, the lowest level since February 2021, price increases accelerated in the final months of the Biden administration. Food costs have risen every month since August and have stagnated after a dramatic improvement early last year. In fact, Mr. Trump relentlessly emphasized the slump in food prices, saying after the election that it would be “very difficult” to lower them further.
Rising energy prices accounted for 40% of last month’s rise in inflation, but it’s still slightly lower than a year ago. The increase was driven primarily by gasoline and fuel oil, at a time when utility bills are expected to jump nearly 9% due to soaring home heating costs.
Ironically, however, efforts to reduce inflation may be hampered by the underlying strength of the labor market and the economy as a whole.
The Biden administration sought to solidify that record, releasing a Treasury analysis last week stating that “labor market, household, and business indicators are all at levels typical of a booming economy, including for prime-age workers (ages 25 to 54). “Some indicators are at levels typical of a booming economy.” Labor force participation rates, median household wealth, and business applications are at or near historic highs. ”
Fed monetary policymakers, who are no doubt watching these policies closely, have previously lowered interest rates to calm a historically depressed economy. But while things are generally going well, they are learning that using too much momentum too quickly or with too much momentum could undo their hard-won progress and send prices rising again. I feel it keenly.
What happens next will also depend on the policies Trump implements immediately after taking his second oath of office.
He said his tax and immigration enforcement proposals are top priorities. Corporate executives are enthusiastic about the former, especially plans that combine lower corporate tax rates with deregulation. Economists say President Trump’s pledge to detain and deport millions of illegal aliens could shake up key industries that rely heavily on immigrant workers, especially agriculture, health care and construction. It is pointed out that there is.
President Trump’s tariff plan is another wild card that threatens to raise diplomatic tensions with allies and rivals alike and raise costs for companies ranging from tech startups to microbreweries and bicycle makers. Given this uncertainty, market experts are dialing back expectations for the Fed’s pace of further rate cuts.
Wells Fargo economists recently wrote in a note to clients that they believe the FOMC will be delayed in the coming months due to the resilience of the U.S. labor market, the persistence of inflation, and the uncertainty arising from federal economic policy. “There are,” he said, referring to interest rates. Establishment of the Federal Open Market Committee.
Economists at BNP Paribas even expect the Fed to remain on hold for the rest of the year. “We continue to expect no interest rate cuts in 2025 given rising inflation due to the new administration’s policies,” they said in a letter to clients. That would keep the cost of borrowing on credit cards, auto loans and other things with interest rates tied to the Fed’s index uncomfortably high. The yield on 10-year government bonds, which is the benchmark for mortgage interest rates, has also risen.
And there’s also simply a national mood. Mr. Trump won the confidence of most voters that he could handle the economy better than his predecessor. But his work will be needed to change a deep-seated outlook shared by millions of people despite long-standing partisan differences on the issue.
“Inflation is improving, but most people don’t agree with that,” said Greg Barriere, chief U.S. policy strategist at AGF Investments. He added that there is also the possibility of conflict between President Trump and Federal Reserve Chairman Jerome Powell. President Trump has said he will not remove Powell from the central bank’s top post before his term ends in May 2026.
“Trump definitely thought we could get a few rate cuts in 2025, but we might not get any rate cuts at all, or we might only get one or two rate cuts,” Barriere said. . “He and Mr. Powell have a history of feuding, and that feud could reignite if the Fed refuses to cut rates.”
Still, context is important. Inflation averaged 2.9% for all of last year, lower than the 3.3% rate for all of 2023 and below the long-term average of 3.5%, said Kevin Gordon, investment strategist at Charles Schwab.
While this is a positive trend, it may be difficult for people to understand what will happen to the world in which they live, work, shop, and vote, or for politicians who came to power promising change to stay in office. I don’t know.