Economic Outlook with Trump Presidency

By Ann Saphir

SAN FRANCISCO (Reuters) – Leading economists, including past presidential advisers, agree that President-elect Donald Trump’s plans for tariffs, tax cuts, and immigration changes may not be as inflationary as initially thought.

However, they warn that attempts by Trump to control the Federal Reserve could increase price pressures, a concern that contributed to his election.

With two weeks until his inauguration, discussions at the American Economic Association conference focused on the economic implications of Trump’s return to office.

He will inherit a growing economy, expanding at approximately 3%, with low inflation and an unemployment rate of 4.2%.

Trump’s agenda includes imposing tariffs on countries like China, Mexico, Canada, and the EU, which might raise import prices. The plan to extend tax cuts and possibly introduce new breaks could boost demand at a time when the Fed aims to reduce it. The immigration crackdown could also hinder U.S. labor growth and fuel wage inflation.

Ben Bernanke, former Fed Chair, stated that Trump’s policies might have only a modest effect on inflation. Many tax cuts are likely to remain, regardless of the president.

Romer, former Obama adviser, echoed Bernanke’s sentiment but highlighted risks of Trump interfering with Fed Chair Jerome Powell’s inflation control efforts. Furman cautioned that even small increases in inflation could affect Fed rate decisions.

Despite potential challenges from Trump’s policies, others believe the economy is poised to continue on a stable path, underpinned by strong consumer and business confidence.

In summary, while Trump’s economic policies could impact inflation, most economists predict modest effects, allowing the economy to remain on track for growth and disinflation.