Trump Deportation Push Seen Driving U.S. Inflation Toward 4%

Moody’s chief economist Mark Zandi has warned that Donald Trump’s immigration policies, including large-scale deportations, could drive U.S. inflation toward 4% by early next year. According to Zandi, the White House’s current pace—deporting approximately 750 immigrants daily—has reduced the foreign-born labor force and contributed to a flattening of the overall labor market since the beginning of the year. This tightening of labor supply is adding upward pressure on wages and, consequently, inflation [1].

Zandi’s concerns are grounded in recent data. The Labor Department reported a 0.9% jump in the producer price index (PPI) from June to July, the largest increase since 2021. Annual wholesale prices rose 3.3%. Services costs accounted for over three-quarters of the rise, including a near 40% spike in fresh and dry vegetable prices. Zandi argues that while factors like tariffs and weather play a role, restrictive immigration policies are a central cause [1].

The White House has pushed back, framing the deportation strategy as a means to unlock “untapped potential” in the domestic workforce. Spokesperson Abigail Jackson highlighted that over 10% of young Americans are neither working nor in school, and she emphasized the administration’s focus on ensuring job gains go to native-born workers. She claimed that “100% of job gains since Trump returned to office have gone to native-born American workers” [1].

However, the economic debate is divided. Economists like Zandi and institutions including Morgan Stanley and Barclays argue that hiring has slowed due to an artificially constrained labor supply—driven by Trump’s border closures, deportations, and so-called “self-deportations.” Zandi estimates annual immigration has dropped from 4 million at the 2023 peak to 300,000–350,000 today, calling it a “massive change” that is increasing costs in industries such as agriculture, construction, and hospitality [1].

On the other side, the Heritage Foundation’s Steve Moore acknowledges potential labor shortages but suggests the impact on wages and prices will be minimal. The alternative view sees the slowdown in hiring as a reflection of reduced business confidence and softer consumer demand, not immigration policy [1].

The implications for Federal Reserve policy are significant. Zandi argues that if the inflation is driven by supply-side constraints—such as immigration restrictions—then traditional monetary tools like interest-rate cuts may be ineffective. Tariffs, by contrast, are one-off shocks that may not have the same long-term inflationary effect. In a scenario of supply-side inflation, Zandi warns, higher labor costs could become self-reinforcing, making inflation more persistent [1].

Zandi also sees a potential path to reducing inflation through easing immigration restrictions. He advocates for a rational policy that allows immigrants of all skill levels into the country, noting their contributions to innovation and entrepreneurship. Whether the administration will adjust its stance remains uncertain. Zandi does not believe inflation is the primary motive for restrictive immigration policies but acknowledges that it could be an unintended side effect [1].

Sources:

[1] title:Trump is deporting so many immigrants that it could cause inflation to hit 4% next year, top economist says (url:https://fortune.com/2025/08/16/trump-deportation-immigration-inflation-2026/?itm_source=parsely-api)