Under Donald Trump, inflation averaged 1.9%. During Joe Biden’s presidency, inflation has averaged 5.4%. Many voters see Biden as the anti-inflation guy.
But some prominent investors believe that future inflation would be worse if Trump wins the 2024 election than if Biden wins. Goldman Sachs argued in a June 18 analysis that investors who are concerned about the inflationary impact of Trump’s economic policies if he becomes president should buy gold.
“We see value in a long gold position as an inflation hedge against geopolitical shocks such as tariffs, Fed subordination risk and debt uncertainty,” Goldman analysts wrote. While they didn’t identify this as a Trump administration policy, these three potential shocks are clear indicators of the economic policies Trump is pursuing.
Trump is the new 60% tariff on all imports from China, 10% tariff on all other importsTariffs are taxes paid by Americans. Increases the typical household’s expenses by $1,700 According to the Peterson Institute for International Economics, inflation doubles every year. Shoppers end up spending more money for the same things, which is essentially inflation.
Trump also believes the White House should exert more control over the Federal Reserve, which would send financial markets into a tailspin: The Fed has a tough job just trying to keep inflation and employment at optimal levels, but political interference from the White House could make it even harder.
Trump, in particular, has been pushing the Fed to cut interest rates, even though the standard approach to controlling inflation is to raise interest rates and slow the economy. If Trump wins a second term and tries to impose his own policies on the Fed, he could easily stoke inflation and undermine confidence in the U.S. economy.
Trump also wants to extend a set of 2017 tax cuts that are set to expire at the end of 2025. That would add $4 trillion to $5 trillion to the national debt, but Trump doesn’t seem to care. The markets do, though. At some point, all that excess debt in the market will “print money,” which will also fuel inflation.
Although there are two main candidates, there are four possible outcomes for the 2024 election.
Both Trump and Biden could win with their respective parties’ total control of Congress, or with a divided Congress. This will determine whether the president can use his party’s control of Congress to pursue partisan policies. If the opposition party controls at least one house of Congress, they can block many of the president’s preferred policies.
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But if Republicans gain full power, they will need to be careful.
“The risks of rising inflation appear to be greater in the event of a Republican sweep,” Goldman advised. In addition to higher tariffs and increased criticism of the Fed under a Trump administration, the investment bank noted that the Trump administration’s immigration crackdown could lead to labor cuts, exacerbating labor shortages in some industries, driving up wages and pushing up prices.
Another recent analysis by Moody’s Analytics came to a similar conclusion about the economy under a second Trump term: “Policies adopted under a Republican supermajority scenario would lead to higher inflation and slower economic growth,” Moody’s Analytics concluded, primarily because new import tariffs and reduced immigration under Trump would push up prices and hurt growth.
in May AnalysisOxford Economics found that new tariffs and other Trump policies could raise inflation by as much as one percentage point above what it would be without them. Trump’s inflation-boosting policies could force the Fed to postpone interest rate cuts and even raise rates further to head off new inflationary pressures. That could infuriate Trump, forcing him to try to fire Fed Chairman Jay Powell, whose term runs until 2026.
Voters who look back on the low-inflation years of Trump’s presidency may wonder why his second term will be so different. The answer is that geopolitical events like the coronavirus pandemic and Russia’s invasion of Ukraine have upended the economy, leaving much less room for error.
The United States and other countries are now “reshoring” supply chains for key goods, making them less vulnerable to shocks but also raising costs. Labor shortages for most of the past three years have driven up wages, another factor driving up prices.
Global energy markets are also much tighter than they were before COVID-19. At the time, U.S. drillers and OPEC oil countries were essentially oversupplying the market and competing for market share, which kept prices low. But the sudden drop in demand during COVID-19 has led to huge losses and a new “capital discipline” that prioritizes profits over share. Today, virtually no energy producer wants to overproduce, for any reason.
Inflation has spiked under Biden but is now returning to normal levels. Many economists expect continued deflation and ultimately Fed rate cuts, predictable trade policies, and slow growth if Biden is re-elected. The ultimate status quo scenario would be one in which Biden wins and Republicans control at least one house of Congress and are able to block progressive Democratic legislation.
Biden’s economic policies remain unacceptable to voters with selective memories.The “Trumpnesia” phenomenon As voters forget President Trump’s erratic response to the COVID pandemic, Other controversies And I only remember gas being under $3 a gallon. With Trump in office again, I may have a very different memory.
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