Trump's "Inflation View"

The Federal Reserve's "balance" may once again tilt towards "inflation," and has Trump's attitude towards inflation begun to waver? Under the Federal Reserve's dual mandate of "inflation + employment," inflation has steadily cooled since Q2 of this year, shifting the focus of monetary policy from inflation to employment; currently at a turning point in the Federal Reserve's "balance": inflation may again become the focus of monetary policy next year, and Trump's recent interviews show a more ambiguous stance on tariffs driving up prices.

Inflation may temporarily shift into an upward channel. In November, the U.S. CPI rose from a previous value of 0.2% to 0.3% month-on-month, with a year-on-year increase of 2.7%, in line with market expectations, previous value 2.6%; core CPI year-on-year was 3.3%, matching both the expected value and previous value.

Breaking it down: 1) Food and energy CPI increased year-on-year and month-on-month in November; 2) Core goods year-on-year improved from -1.0% to -0.6%, month-on-month from 0% to 0.3%, with increases in furniture, clothing, motor vehicles, and medical goods, while the month-on-month growth rate of recreational goods decreased; 3) Core services year-on-year decreased from 4.9% to 4.6%, month-on-month remained at 0.3%, with housing growth cooling, year-on-year from 4.9% to 4.7%, month-on-month from 0.4% to 0.3%.

What does Trump think about the "inflation" issue?

Will tariffs lead to inflation? From outright denial to ambiguity. In a December 8 NBC News interview, when asked if tariffs would cause families to pay higher prices, Trump stated, "I can't guarantee anything." Previously, Trump had claimed, "Tariffs will not be a cost to American residents, but a cost to another country."

Trump's aides and team defend the tariff policy.

Treasury Secretary nominee Bentsen stated: that believing Trump's policies would trigger inflation is "absurd"; tariffs would be "implemented in phases" rather than all at once; under Trump's leadership, "the budget deficit will decrease, not increase." Bentsen proposed to "reduce the deficit rate to 3% by 2028." J.D. Vance stated in an NBC News interview on August 25 this year that "consumers are doing better under tariffs." The Republican National Committee cited a research report from the Coalition for Prosperous America (CPA) indicating that a 10% tariff would stimulate domestic production, resulting in a 5.7% increase in real household income.

Criticism of Biden's energy and fiscal policies driving up inflation. In an interview on December 8, Trump reiterated that Biden's energy policies and excessive government spending have caused inflation, stating that without the Russia-Ukraine conflict and the new round of the Israel-Palestine conflict, there would be no energy-induced inflation.

Trump's team proposed five methods to combat inflation.

1. Release energy production: This includes releasing energy production from all sources, including nuclear energy; making the U.S. the world's largest oil and gas producer. Trump stated in September that if he returns to the White House, he would halve domestic gasoline prices within a year.

2. Curb wasteful federal spending: Stabilize the economy by cutting wasteful government spending and promoting economic growth.

3. Reduce heavy regulation: Restore Trump's deregulation policies, noting that these policies saved each American household $11,000, while Biden's regulatory policies harmed American families.

4. Stop illegal immigration: Reverse the Democrats' open border policies, pointing out that these policies have driven up housing, education, and healthcare costs for American families.

5. Restore peace: Indicate that geopolitical stability will bring price stability (especially for commodities).

How was inflation controlled during Trump's first term?

During Trump's first term, the average CPI growth rate was 1.9%. Inflation rose in the first half of 2017-2018, peaking at 2.9% in June 2018, and then fluctuated downward. The good control of inflation was attributed to the decline in the growth rate of energy items from 2017 to May 2020; the growth rate of the most heavily weighted housing items remained stable from 2017 to 2019 and decreased in 2020.

Outlook for 2025: The CPI growth rate is expected to have an annual central tendency of 2.6%, a decrease of 0.3 percentage points from this year, showing a "V-shaped" trend, dropping to around 2% in the middle of the year and rising to 3.4% by the end of the year Next year's "re-inflation" risk is controllable and will not trigger interest rate hikes by the Federal Reserve. (See "U.S. Economy: 2025 Q&A" for details)

The key to whether "re-inflation" will occur in the next four-year term may still depend on whether Trump can fulfill his promise to "control the deficit." The price "shock" caused by tariffs and the expulsion of immigrants may only be temporary, as prices will also fall with weakening demand, reaching a balance between supply and demand.

Authors of this article: Pei Mingnan S1090523040004, Tao Chuan S0600520050002, Source: Chuan Yue Global Macro, Original title: "Trump's View on Inflation (Minsheng Macro Pei Mingnan)"

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