Inflation Elevated Amidst Trump's Economic Policies
President-elect Donald Trump's proposed policies have cast uncertainties over the Federal Reserve's efforts to stabilize inflation.
Despite nearing the Fed's 2% inflation target, price increases remained a concern throughout 2024. The Fed acknowledges increased inflationary risks, citing strong inflation readings and potential impacts of trade and immigration policies.
Trump's policies, including tariffs, tax cuts, and immigration curbs, are expected to contribute to inflation. Updated Fed projections forecast core inflation at 2.5% in 2025, higher than previous estimates.
Tariffs, a key campaign promise, pose a significant threat to inflation. President-elect Trump intends to impose sweeping tariffs, escalating concerns among economists. Deutsche Bank projects a 20% cumulative rise in tariffs on China.
Fed Governor Michelle Bowman highlights another potential inflationary factor: pent-up demand due to improved consumer and business sentiment following Trump's election. She cautions against ruling out further inflation challenges.
Goldman Sachs strategist David Kostin suggests investors anticipate animal spirits driving economic growth and elevated inflation. This optimism has impacted stock market performance, leading to expectations of fewer rate cuts. However, the sustainability of this enthusiasm remains uncertain.