Biden Adviser Warns: Trump's Fed Meddling Risks Inflation Surge

As the 2024 U.S. presidential election heats up, a key concern for voters and economists alike is the potential impact of a renewed Trump presidency on the economy, particularly regarding inflation. A Biden administration adviser has recently warned that Donald Trump's proposed policies, if implemented, could lead to a significant increase in inflation, undermining the progress made by the Federal Reserve in controlling prices.



One of Trump's main proposed policies is to extend the Tax Cuts and Jobs Act in combination with reduced corporate taxes, tax exemptions, and deregulations. While this could have some positive impacts on the U.S. economy in the near term, such as boosting sentiment and encouraging companies to invest and consumers to spend, it could also lead to higher government deficits and increased borrowing costs in the long term. In 2024, the fiscal deficit in the U.S. is expected to stay at 6.9% of total GDP, while the debt-to-GDP ratio would reach 121%, remaining higher than pre-pandemic levels. Rising deficit and debt levels could push borrowing costs up for the U.S. economy, potentially fueling inflation.

Another concern is Trump's proposed tariffs on imports from China and other countries. If these tariffs materialize, they could lead to higher prices for consumers. Merchants would likely pass the price increases on to consumers, pushing up consumer prices and contributing to inflation. A 10% tariff across the board could push core inflation as measured by personal consumption expenditures (PCE) to 4% annually next year, up from its level last month of 2.7%. Higher tariffs could exacerbate this effect, with inflation rates potentially rising by about 2%.



Trump's immigration policies could also contribute to inflation. Reduced immigration would affect several key sectors such as construction, services, and agriculture, driving up wages and inflation. Foreign citizens make up 6.7% of the total U.S. population in 2024, and foreign workers have been a key source of labor force growth in the country. On a global level, inflationary pressures will also rise in the medium and long term as global businesses suffer higher costs as they have to invest in new production locations and diversify supply chains.

In conclusion, a renewed Trump presidency could have far-reaching effects on the U.S. and global economies, particularly regarding inflation. Proposed tax cuts may deliver short-term boosts to investment and income in the U.S. but risk creating medium- and long-term challenges. Increased tariffs and immigration controls could drive up prices and contribute to inflation, while higher tariffs could disrupt global trade and accelerate efforts by companies to de-risk supply chains. To maintain economic stability and growth, it is crucial for the Federal Reserve to remain independent and focus on controlling inflation, regardless of political pressure.