"Inflation Rebound if Trump Wins and Republicans Control Congress"

Moody's Analytic Analysis

Analysis suggests that if former President Donald Trump wins the U.S. presidential election this November and the Republican Party gains control of the House of Representatives, inflation in the United States could rebound.

Mark Zandi, Chief Economist at Moody's Analytics, and others recently released a report titled "Macroeconomic Outcomes of a Biden vs. Trump Contest," estimating the probability of Trump winning and Republicans controlling the House at about 35%. Under this scenario, they forecast the consumer price inflation rate to rebound from 3.0% this year to 3.6% in 2025.

The report anticipates that under this scenario, "Former President Trump would make permanent the tax cuts introduced in 2017 under the Tax Cuts and Jobs Act (TCJA), impose high tariffs on trading partners such as China, and implement stringent immigration policies including deportations." It explains that the tax cut policies would stimulate the economy, while stricter immigration policies could overheat the labor market and reignite inflation.

The report further states, "The Federal Reserve (Fed), which is focusing its policy on rising labor costs and inflation, may feel compelled to resume interest rate hikes or at least delay rate cuts," adding that "as a result, a recession could once again emerge as a serious threat."

Conversely, if President Joe Biden wins the election, the report expects the trend of slowing inflation to continue. It assigns a 40% probability to a scenario where President Biden is re-elected, the Democratic Party narrowly retains a majority in the House, but the Republicans regain control of the Senate. In this scenario, inflation is projected to reach the Fed's target of 2% by the summer of 2025.

The report concludes, "Biden’s re-election and a divided Congress is our baseline scenario," and judges that "in this case, the current economic policies will largely continue."

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