Donald Trump’s economic policies—like tariffs, fiscal stimulus, and immigration changes—have sparked debates on their potential impact. Will they boost growth or fan the flames of inflation? Let’s break it down in a way that’s easy to digest.
Inflation: Where Are We Now?
Inflation has cooled off since hitting a fiery 9.1% in the summer of 2022, settling at 2.9% now. While that’s a big drop, it’s still above the Federal Reserve’s ideal 2%. And according to economist Rebecca Patterson, we might not be out of the woods yet.
At the Federal Reserve’s December meeting, officials flagged potential risks tied to Trump’s policies. The uncertainty around trade and immigration changes could tip inflation even higher. Why? Because any shift in these areas could send shockwaves through the economy.
What’s the Big Deal About Inflation?
If inflation stays high, the Federal Reserve may struggle to lower interest rates, which means borrowing could get pricier for everyone—from businesses to families. Analysts are also worried about ballooning budget deficits.
Here’s the math: The Congressional Budget Office predicts the deficit could swell from $1.9 trillion in 2025 to $2.7 trillion by 2035. That means the government will need to borrow more money by selling bonds. But if buyers aren’t eager to snap them up (especially with higher tariffs scaring off overseas investors), bond prices could drop—and yields (a fancy term for returns) would go up.
When bond yields rise, it can ripple through the economy. Home loans, car loans, and even credit card rates could climb. And for those with 401(k) plans, higher borrowing costs combined with falling stock prices might spell trouble.
A Glimmer of Hope?
There’s a chance we could see a more positive scenario. If long-term growth prospects look bright, higher bond yields might coexist with rising stock prices. That’s good news for savers and makes borrowing costs more manageable.
Rebecca Patterson pointed out a moment like this last fall when the S&P 500 and bond yields rose together. Back then, expectations for deregulation without runaway inflation buoyed markets. Could Trump’s administration strike the same balance?
The Verdict: Wait and See
As the new administration rolls out its policies, the stakes couldn’t be higher. Striking the right mix of tariffs, fiscal discipline, and deregulation will be crucial.
If they play it smart, we might see growth without the inflation headache. If not, families and businesses could face tougher times ahead. Either way, the next few months will set the tone for America’s economic future.
