Trump's Tariff and Immigration Proposals May Boost Prices

A few days before the president-elect returns to the White House, Pierre-Olivier Gourinchas, head economist at the International Monetary Fund (IMF), warned that Donald Trump's economic proposals run the risk of rekindling US inflation.Trump's plans to increase tariffs and restrict immigration will probably limit the economy's supply side and raise prices.

He said that other policies the president-elect has proposed, such reducing taxes and red tape, would potentially increase demand and drive inflation. "The bottom line is, when we look at the risk for the US, we see an upside risk on inflation," Gourinchas said.

Due to policy "uncertainty," the IMF increased its prediction for global growth and dramatically increased its outlook for the US economy in the WEO update, which did not take Trump's proposals into consideration. Trump and his advisers have resisted the argument that his entire package of proposed policies should help control prices, despite the fact that many economists view his immigration and tariff policies as inflationary.

According to CME Group statistics, traders have reduced the amount of rate cuts they anticipate the US Federal Reserve will make in 2025, rating the likelihood that it will make no more than two quarter-point reduction this year at about 80%.

In keeping with the median prediction of Fed officials polled in December, Gourinchas stated that the IMF anticipates the Fed to lower rates by half a percentage point in 2025 and 2026.