If President Trump was elected with a specific mandate, it was to lower prices. Poll after poll reveals that inflation is a top worry for Americans. So the administration should be worried that prices are ticking back up.
Further, the president — who seems to think he can solve all problems unilaterally with executive-branch orders — will soon discover that to conquer inflation, he will need the help of Congress.
Today’s rising inflation isn’t Trump’s fault. When inflation first spiked several years ago, the Federal Reserve insisted for months that it was under control and on its way back to the 2% target. It had yet to arrive there when, this past September, the Fed began prematurely cutting interest rates. Now, core Consumer Price Index inflation remains at 3.3% year-over-year, well above the pre-pandemic norm and a full 65% higher than the Fed’s supposed target.
At the current rate, the dollar will lose 29 cents of its purchasing power within a decade. This is not a temporary inconvenience; it’s a fundamental betrayal of sound-money principles. Americans who save in dollars suffer their wealth melting away while those with assets inflated by easy-money policies continue to benefit.
The problem isn’t just visible in the commonly cited Consumer Price Index. Also flashing warning signs is the Producer Price Index, which tracks wholesale prices. In January, the year-over-year increase hit 3.5%, up from a low of 0.9% in January 2024. Producer prices lead consumer prices, meaning that the cost pressures businesses face today will soon be passed on to us.
Rising prices should have warned the Fed that inflationary pressures were building again, yet policymakers plowed ahead with interest rate cuts. They didn’t seem to be responding to economic fundamentals; they were responding to Wall Street’s demands for easy money.
The deteriorating fiscal outlook, primarily a result of Congress’ taxing and spending decisions over the decades, won’t help fight inflation either. The Congressional Budget Office’s 10-year projections from January show the national debt growing over the next decade by $23.9 trillion. The recent House Republican budget would add an additional $4 trillion, only part of which will be offset with investment-driven economic growth.
More borrowing means higher interest costs on the national debt, which are already skyrocketing and projected to soon exceed $1 trillion per year. As Hoover Institution economist John H. Cochrane has pointed out, when the Fed raises interest rates to combat inflation, it also raises these interest costs on the public debt.
This creates a fiscal problem: Unless Congress cuts spending or raises tax revenue or does both, higher interest payments require more borrowing, adding to the budget deficit and undermining the Fed’s efforts to contain inflation.
This dynamic is playing out now. If it continues, the Fed might eventually be forced to reverse its rate cuts and push rates even higher. With so much of the federal government’s debt maturing over the short term, the cycle will quickly repeat itself.
But isn’t Trump taking decisive action to curb excess spending through his “Department of Government Efficiency” team? If it successfully roots out fraud and improper payments, it could make more than a symbolic dent. Yet it will still fall short if entitlement spending isn’t brought to a sustainable level, which only Congress can do.
In addition, if Trump and that team’s public face, Elon Musk, are serious about sending taxpayers checks based on the savings found — the so-called DOGE dividend — the extra cash in our pockets and the total disregard for our growing deficits could inflame inflation much like Biden-era stimulus money once did.
A few other policies over which the president holds more control or influence deserve mention. Trump’s trade policy, of course, may obstruct the fight against higher prices. First, tariffs directly increase the prices of goods. They also make life in American manufacturing harder, because most of what we import are inputs for domestic production. Further, the risk of retaliation by our trading partners is real, as we experienced during the first Trump presidency.
How much consumers will feel trade-driven price hikes depends on whether the administration is successful on other fronts of its agenda. If Trump succeeds in deregulating the economy — the energy and AI industries in particular — the resulting boom could swamp the negative effects of tariffs. The same is true of designing tax policies alongside Congress that genuinely boost investment. However, unlike tariffs that can be levied by the president unilaterally, these achievements will be hard to deliver.
America cannot afford another decade of artificial booms and painful busts. The time for responsible monetary and fiscal policy is now, before inflation and debt spiral up again. Trump’s actions matter a great deal, but Congress needs to do its job. Otherwise, he will fail to deliver on his promise to the American people to bring prices down.
Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate.
