Trump agenda likely to drive up inflation, think tank argues

Investing.com-- A second Donald Trump presidency is likely to drive up inflation, research organization EPI Action said, arguing that tax cuts and tighter immigration policies would likely undermine progress towards lower prices.

The think tank said in a report on Wednesday that a second Trump administration was likely to push for the same policies as the first- namely large tax cuts for higher earners, reduced immigration, and higher trade tariffs. 

But with a changed economic environment from the first administration- in that upside risks to inflation are a lot more prevalent under current conditions- these policies would be likely to drive up inflation. Trump is also expected to roll back the Biden administration’s Inflation Reduction Act.

EPI Action noted that the U.S. economy saw a sharp increase in inflation and interest rates over the past four years, attributing these increases more to the aftermath of the COVID-19 pandemic and shocks from global conflicts. 

While higher rates did contribute towards some economic cooling, inflation in the U.S. was kept uplifted by a strong labor market- one that has kept the U.S. economy closer to an “overheating point.” 

This scenario made a second Trump presidency more likely to drive up inflation, especially in the event of more tax breaks for high earners and large organizations. 

EPI Action, which is comprised of members from the Economic Policy Institute, The Bauman Foundation and from the Service Employees International Union, said higher tariffs also presented an upside scenario for inflation. 

Increased import tariffs are a key promise of the Trump campaign, with the former President vowing to deploy more protectionist policies favoring American trade interests. 

EPI Action said that initial criticisms that a 2016 Trump presidency would drive up inflation were mistaken. But similar criticisms held more ground this time around, given the largely different macroeconomic environment. 

A slew of analysts and research organizations have argued that a second Trump presidency will drive up inflation, especially given the economy’s tendency for higher prices over the past year. 

While inflation has cooled in recent months, it still remains comfortably above the Federal Reserve’s 2% annual target. But the central bank has also gained more confidence in easing inflation, and is widely expected to cut interest rates in September. 

But any resurgence in inflation is likely to keep rates higher for longer. 

Speculation over a Trump presidency comes as the Republican nominee was seen maintaining a lead over Democratic frontrunner Kamala Harris, a CNN poll showed this week.

But Harris was seen polling better than President Joe Biden against Trump, especially after Biden pulled out of the race and endorsed Harris as the Democratic nominee.