### Trump's Inflation Strategy: Tools and Challenges Ahead

President-elect Donald Trump aims to tackle inflation through federal spending, taxes, and trade policy.

### President-elect Trump's Inflation Strategy: Tools and Challenges
* 📉 President-elect Donald Trump has vowed to "**make America affordable again**," emphasizing the need to **address inflation**, a key concern for many of his voters.
* ⚖ Inflation is influenced by the balance of demand and supply; **increased demand can raise prices**, while an oversupply can lower them, and currently, there is **limited excess capacity in the economy**.
* 📊 Economist Donald Kohn highlights that external factors, such as **interest rates and geopolitical risks**, significantly affect inflation, which remains **largely outside presidential control**.
* 🏦 The Federal Reserve plays a crucial role in managing inflation through interest rate adjustments, aiming to **bring inflation down to a target of 2%**, regardless of presidential influence.
* 💰 Presidential policies on taxation, trade, and federal spending can impact inflation, with **increased federal spending potentially boosting demand and leading to higher prices**.
* 📈 Trump plans to extend tax cuts from his previous administration, which could **maintain the current budget deficit and increase demand**, potentially **exacerbating inflation**.
* 🛠 He has proposed using tariffs to fund tax cuts and enhance domestic manufacturing, although there are concerns about tariffs **raising prices and reducing labor supply**.
* 🔍 Ultimately, while Trump has various tools at his disposal to combat inflation, the Federal Reserve's decisions are expected to have the **most significant impact on the inflation trajectory** moving forward.

(audience cheering) - [Narrator] President-elect Donald Trump has promised to lower inflation. - Make America affordable again. We're gonna make it affordable. - [Narrator] About half of Trump voters said higher prices were the largest factor in their decision, 

but the President has limited control over inflation. - Anything that affects the economy, how much people wanna buy and how much people wanna supply will affect inflation. - [Narrator] Here's a look at some of the inflation fighting tools a president can use.

Think of prices as a scale. On one side is demand, which comes from buyers having increased spending power. On the other side is supply or how many goods and services are available. Prices tend to go down when there's too much supply.

When there's too much demand, prices go up. - Where we are right now, there's not a lot of excess capacity in the economy. - [Narrator] Donald Kohn is an economist who spent 40 years working in the federal reserve system.

- If you add to demand under this circumstance, that's when inflation is going to rise. - [Narrator] And a lot of factors can play a role in driving inflation up or down. - Interest rates, geopolitical risks, growth risks abroad.

Things that make people want to buy more will tend to push up prices and potentially inflation. Things that make people want to produce more or produce more efficiently will tend to reduce pressures on prices, bring inflation back down. - [Narrator] Much of this remains

outside the president's control. The Federal Reserve, for
example, is independent and uses interest rates to encourage or discourage borrowing money, which leads to more or less spending. For the past several years,
the Fed has used rate hikes to bring inflation down near its 2% goal.

- They make their decisions
based on the objectives that Congress has given them, and the President can
be unhappy about that as Donald Trump was in his first
term and as many presidents before Donald Trump have been. But basically it's up
to the Federal Reserve

to make the decisions it wants to make. (explosives blasting) - [Narrator] What's going
on in the rest of the world can also affect the balance of supply and demand in the US. - Think about the Russian
aggression in Ukraine.

The immediate effect of that was to raise energy prices tremendously because of the cutoff of
Russian oil from global markets, - [Narrator] Still presidential policy can make a difference. Taxation, trade policy,
and federal spending are three key areas where the president can affect inflation.

Take federal spending. - [Dr. Kohn] Spending
more money for defense or because people need it to eat, or social security that's putting
money in people's pockets, they'll spend it. That's boosting demand. - [Narrator] One way to
balance out the effects

of increased federal spending
is through higher taxes, because that takes money
out of people's pockets. When it comes to trade policy, tariffs directly affect the cost of goods and put pressure on supply. - If you put on tariffs, the imports into the country
will be more expensive.

That's the whole point. - [Narrator] What happens
from there also depends on whether the public
thinks prices are going up or if they trust that Donald Trump's policies
will bring them down. - Together we will deliver
low taxes, low regulations,

low energy costs, low
interest rates, low inflation so that everyone can
afford groceries, a car, and a home, common sense. (audience applauding) - [Narrator] As part of his
plan to cut government spending,

Trump has said he will
create the Department of Government Efficiency led by Elon Musk and Vivek Ramaswamy. - We expect certain agencies
to be deleted outright. - It's very hard to get Congress to reduce government spending. What do you mean you wanna shut

that agricultural research station in my congressional district? You wanna shut that army base
in my congressional district. It's one thing for a commission to make a bunch of suggestions. It's entirely another thing
for the Congress to do this. - [Narrator] With full
control of the Congress,

Republicans are expected to
extend the tax cuts implemented during Trump's last administration. - Extending the 2017 tax cuts
will basically keep the kind of budget deficit that we've
had through the Biden years. The 5-6% of GDP.

- We're gonna be reducing taxes. We can do things that nobody else can do. - Adding tax cuts, tax
cuts, tax cuts on top of what we've already got is
going to increase the deficit and will add to demand in the economy.

- [Narrator] On the campaign
trail, Trump said he would use tariffs to pay for tax cuts and make the US a
manufacturing superpower. - The key to this effort will
be a pro-American trade policy that uses tariffs to
encourage production here

and bring trillions and
trillions of dollars back home. - It will bring in some revenue and how much depends on
how broad the tariffs are, whether there are ways of
avoiding paying the tariffs by buying stuff from other countries,

or if it's easily available here. - [Narrator] There are
also other policies Trump has talked about, like mass deportations, whose effects remain unclear. - I worry about the tariff
part of it, raising prices. I worry about the immigration part of it,

reducing the supply of labor. I would worry, depending
on how all this adds up, the effects could be more
on the price increase side than on the price decrease side. - [Narrator] Even with the
White House's inflation

fighting tools, federal
spending, taxes and trade policy, the Fed will likely have
the biggest influence. - Right now, I think most people, including people in financial markets, think inflation is headed
back to the 2%, no matter

what the Trump administration does or what the Harris
administration would have done because the Fed is
determined to get it there. (gentle music)

How Much Control Will Trump Actually Have Over Inflation? | WSJ

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The Wall Street Journal

Trump promised to lower inflation and make America affordable.

A president has limited control over inflation, which is affected by supply and demand.

Inflation is influenced by the balance between buyer spending power (demand) and available goods and services (supply).

Economist Donald Kohn explains that increased demand without excess capacity leads to inflation.

Various factors, such as interest rates and geopolitical risks, influence inflation.

The Federal Reserve, independent of the president, uses interest rates to manage inflation.

The Federal Reserve's decisions are based on Congressional objectives, not presidential preferences.

Global events, like the war in Ukraine, affect US supply and demand, impacting inflation.

Presidential policy influences inflation through taxation, trade policy, and federal spending.

Impact of Presidential Policies on Inflation

Increased federal spending boosts demand, potentially increasing inflation.

Higher taxes counteract increased spending by reducing disposable income.

Tariffs increase the cost of imports, affecting supply and prices.

Public perception of price increases and trust in Trump's policies also play a role.

Trump's Proposed Policies and Their Potential Impact

Trump's plan to cut government spending through a new Department of Government Efficiency faces challenges in Congress.

Extending the 2017 tax cuts would increase the budget deficit and add to economic demand.

Additional tax cuts would increase the deficit and boost demand, potentially increasing inflation.

Trump's proposed use of tariffs to pay for tax cuts and boost manufacturing has uncertain effects.

Concerns exist regarding the potential price increases from tariffs and labor shortages from immigration policies.

Despite administration policies, the Federal Reserve's actions are expected to be the primary driver of inflation returning to 2%.