Those guarantees include high tariffs on imported goods, particularly from China, in addition to lower tax rates and looser regulation.
Trump has promised that with him as president “inflation will completely disappear.” But some have expressed concerns that his economic policies could actually put upward pressure on inflation, in turn slowing the pace of rate of interest cuts expected by the Federal Reserve.
How the introduction of tariffs could affect inflation within the USA
“Tradition tells us that this increase in tariffs will increase inflation in the U.S.,” said Sheila Block, an economist on the Canadian Center for Policy Alternatives.
Higher inflation would mean the Federal Reserve could cut rates of interest more slowly, and markets are already changing their bets on how low the central bank is more likely to cut rates of interest.
“If you impose tariffs, hit the accelerator hard, and create labor shortages and labor shortages and wage inflation by stimulating the economy, then the Fed won’t necessarily have as much leeway to cut interest rates as quickly or as much as they would “Otherwise,” said Brian Madden, chief investment officer at First Avenue Investment Counsel.
As expected, the Federal Reserve cut its key rate of interest by 1 / 4 of a percentage point on Thursday, lowering its key federal funds rate to between 4.5% and 4.75%.
Economists at Goldman Sachs have estimated that the proposed 10% tariff rate, in addition to proposed taxes on Chinese imports and cars from Mexico, could cause inflation to rise by almost 3% by mid-2026.
After the election, markets began pricing in a rather higher “neutral rate” for the Fed, in keeping with a TD Economics report Wednesday. This signifies that markets expect the central bank to finish its rate of interest cutting cycle more sharply than previously expected.
