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Trump Policies Unlikely to Spark Major Inflation Surge, Bernanke Says

AInvestSunday, Jan 5, 2025 6:41 pm ET
1min read


In a recent panel discussion at the American Economics Association meeting in San Francisco, former Federal Reserve Chairman Ben Bernanke offered his perspective on the potential impact of the incoming Trump administration's economic policies on inflation. Bernanke, who served as the Fed chair from 2006 to 2014, suggested that while Trump's policies may have some modest effects on inflation, they are unlikely to cause a radical shift in the inflation rate.



Bernanke agreed that Trump's proposed policies, such as extending the 2017 tax cuts and implementing stricter immigration policies, could have some impact on the inflation rate. However, he noted that many of these policies are already in place or are uncertain in their implementation, which would limit their overall effect on inflation. For instance, the 2017 tax cuts are largely in place, and immigration policy changes are a slow and uncertain process. Additionally, the impact of increased tariffs on inflation is uncertain, as it depends on how businesses adapt to the new tariffs or find cheaper alternative supply sources.

Bernanke's assessment aligns with the views of other economists, who have also suggested that Trump's policies are unlikely to have a significant impact on inflation. For example, former top Obama administration economist Christina Romer agreed that extending the tax cuts, new import tariffs, and curbs on immigration would push up inflation, "at least a small amount." However, she noted that inflation "seems somewhat stuck" at a 2.5% annual rate, above the Fed's 2% target. Harvard economist Jason Furman agreed that Trump's policies would have a relatively small impact on inflation, estimating around three- or four-tenths of a percentage point.



In conclusion, while the incoming Trump administration's economic policies may have some modest effects on inflation, they are unlikely to cause a radical shift in the inflation rate. The Fed's response to these policies will depend on the specific impacts on the economy and the potential risks to financial stability. As Bernanke noted, barring some unusual situation, including geopolitical risks, it doesn't seem that Trump's policies will significantly alter the inflation path in the near future.
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