Trumpflation

Key Takeaways

• "Trumpflation" described concerns for potential rising inflation in President Trump's first administration due to his proposed policies.
• Concerns related to Trump's $1.5 trillion infrastructure plan and national debt reduction efforts.
• Market speculation led to financial markets signaling potential inflation post-2016 election.
• Despite fears, inflation averaged only 1.9% annually during Trump's presidency.
• Additional policies like tax cuts and tariffs fueled ongoing debate about potential economic impacts during his first term.

What Is Trumpflation?

"Trumpflation" referred to the concern that inflation would rise during President Donald Trump's first administration, which began in 2017. It was originally used in the months before and after Trump’s election in November 2016 by economists, among others. This concern was based on the perceived inflationary effects of some of Trump’s policies, such as his proposed $1.5 trillion infrastructure spending package. Trump's campaign promise to reduce or eliminate the U.S. national debt, which was just below $20 trillion prior to Trump’s election, also drove this speculation.

Factors Influencing Trumpflation Concerns

In the months before and after Trump’s election victory in November 2016, market commentators speculated that his proposed policies could lead to higher levels of inflation.

One of the main policies cited by those voicing this concern was Trump’s proposal to spend $1.5 trillion on infrastructure projects over a 10-year period. However, given the legislative gridlock in Washington, and a total lack of proposals from the administration, such policies were never enacted.

Speculation over potential inflation was also driven by Trump’s campaign promise that he would reduce, or even eliminate, the U.S. national debt, which was just below $20 trillion prior to Trump’s election. This led to speculation that the Trump Administration might seek to “inflate away” the national debt or impose aggressive cost-cutting measures to reduce the deficit. However, in the years following Trump’s election, deficits have increased considerably, with the national debt growing accordingly.

Other policies that led to the concern over potential Trumpflation included the potential growth of after-tax incomes due to planned tax cuts, the potential growth of domestic wages due to restrictions on immigration, and the potential rise in consumer prices due to new tariffs and other protectionist measures.

At the same time, marker commentators also identified several factors that might serve to mitigate these inflationary risks, such as technological innovation, an aging population, and swelling global debt.

The speculation around Trumpflation was also reflected in the financial markets themselves. In the early morning following Trump’s election victory, markets began generating signals that higher inflation might be on the horizon.

Bank of America Merrill Lynch (BAML) reported that day that rolling eight-week inflows to Treasury Inflation-Protected Securities (TIPS) had reached a record high. Similarly, ten-year Treasury yields rose 30 basis points between November 8 and November 10. The result was a steeper yield curve, spurring concerns over future inflation.

What Was the Inflation Rate Under Trump?

Despite speculation about Trumpflation, the average yearly inflation rate under President Donald Trump was low, hovering at around 1.9%.

What Is a Good Inflation Rate?

The Federal Reserve targets an annual inflation rate of 2%. To that end, it uses monetary policy to rein inflation in when needed.

For example, when inflation peaked in 2022, the Fed adopted a policy of aggressively raising interest rates to cool down spending. It ultimately raised rates 11 times since March 2022 to bring it down.

Which President Had the Highest Average Inflation Rate?

The average rate of inflation was highest under Jimmy Carter's presidential term, between 1977 to 1981. This period saw a year-over-year inflation rate of 9.9%.

It's important to note that presidential policies are just one of the many factors that influence inflation rates.