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Trump’s Inflation Trap
What can Donald Trump do to stop morphing into Joe Biden?
The two presidents could hardly be more different in most ways—but in the one that counts most with voters, Trump is in danger of resembling his predecessor.
Americans rejected Biden and the Democrats last year because they were incensed at the lousy state of the economy.
Right now, they’re not much happier with Trump’s economy.
Inflation was the No. 1 concern on voters’ minds last year, and it’s still a top concern today.
Trump’s team say they plan to tout “affordability” as a theme Republicans can win on in next November’s congressional midterms.
If the election were held today, that pitch wouldn’t sell:
An AP/NORC poll released last week found 67% of Americans view the president’s handling of the economy negatively.
Yet Trump told Politico’s Dasha Burns in a Dec. 8 interview he’d give himself an “A-plus” grade on the economy—and when she questioned that, he raised it to “A-plus-plus-plus-plus-plus.”
The administration thinks Americans will come around to Trump’s perspective on the economy sooner rather than later, and well ahead of the midterms.
Treasury Secretary Scott Bessent reassures his colleagues, and his boss, that come April 15—when Americans see just what the permanent tax cuts Trump shepherded through Congress this year mean for them personally—everyone will feel great.
And Trump has a plan he thinks will guarantee a high-growth economy next year: getting the Federal Reserve to slash interest rates.
He told The Wall Street Journal last week he wants “the lowest rate in the world”—indeed “1% and maybe lower than that.”
Early next year, Trump is set to appoint a new Fed chairman.
He says of one leading candidate, Kevin Warsh, “He thinks you have to lower interest rates” and “so does everybody else that I’ve talked to.”
Lower rates mean easy credit, with businesses and individuals able to take out more loans to finance whatever improvements, new ventures or other spending they wish.
That sounds great—it’s almost free money!—but it’s a recipe for inflation.
The benefits Americans get from keeping more of the money they earn, thanks to Trump’s tax cuts, will be wiped out if inflation accelerates.
A Harvard/Harris poll last week found 57% of voters think Trump is losing the fight against inflation, and while that’s an improvement over last month, when 60% said the same, it’s a warning the administration can hardly afford to ignore.
If Trump gets inflation wrong, nothing he gets right will save the GOP next November—or in 2028.
The good news for Trump is that his overall approval ratings, in the low 40s, are a little higher than Barack Obama’s or George W. Bush’s at this point in their second terms.
The bad news is Obama and Bush both saw their side lose big in the next congressional elections, and neither man was succeeded in the White House by a member of his own party.
Trump is betting big on artificial intelligence to drive the kind of economic boom Bill Clinton enjoyed thanks to the telecommunications and internet revolution.
The administration wants to beat China in AI development no matter what, which is why Trump just issued an executive order limiting states’ ability to regulate the technology.
But there’s another angle, too, as a report in Semafor notes: “A big car company might promise a $5 billion or $10 billion investment. The big AI companies can raise and spend orders of magnitude more” and “Trump is good at counting zeros.”
The public, however, takes a darker view of AI, with fully 50% of Americans polled by Pew this fall saying they’re more concerned than excited about the increased use of AI in daily life—compared to only 10% who were more excited than concerned.
Trump can’t bank on AI giving him that A-plus for the economy he thinks he deserves.
What the administration can do, however, is boost other sectors as well by making slashing red tape and regulation a top priority in Year Two.
Freeing up the economy is the healthy alternative to a Fed-driven credit binge.
Interest-rate cuts are a drug that may produce instant euphoria, but the withdrawal symptoms are deadly—as debt-driven booms turn into devastating busts.
Trump inherited a debilitated economy from a debilitated President Biden; voters will make some allowance for that.
What they won’t do is give the Republican Party another chance if it makes inflation worse instead of better.
Americans voted for Trump; if they wind up with Biden’s economy anyway, there’s going to be hell to pay at the ballot box.
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