Harris or Trump... Whoever Wins, US Inflation Deepens

"Both Candidates Push Policies to Rekindle Inflation"
Concerns Raised Ahead of Fed Rate Cut

The Washington Post (WP) forecasted on the 21st (local time) that inflation could rise again regardless of whether Vice President Kamala Harris or former President Donald Trump wins the U.S. presidential election.

Vice President Harris announced economic policies including expanding the child tax credit and providing down payments for new homebuyers. Former President Trump stated he would abolish taxes on Social Security benefits, increase jobs by deporting illegal immigrants, and impose universal tariffs on imports.

The market expects the U.S. Federal Reserve (Fed) to cut interest rates next month for the first time since March 2020. However, concerns are rising as both party candidates propose policies that could trigger inflation again.

Mark Goldwein, Chief Policy Officer at the Committee for a Responsible Federal Budget (CRFB), said, "We need to recognize policies that risk further exacerbating inflationary pressures," adding, "Many of the policies proposed by Vice President Harris and former President Trump carry the risk of reigniting inflation."

However, both candidates deny that their pledges would cause inflation. Vice President Harris announced plans to raise the corporate tax rate from the current 21% to 28% and increase taxes on the wealthy, arguing that this would secure the revenue needed to implement her policies.

Former President Trump claims that even if tariffs are raised, it is foreign companies, not American consumers, who will bear the cost. However, most studies show that tariff increases are passed on to U.S. consumers. Additionally, the Republican Party has pledged to control prices by expanding domestic fossil fuel production such as oil and gas, reducing government regulations, and curbing federal spending.

Furthermore, Vice President Harris pointed out that former President Trump's tariff proposals would further fuel inflation, while Trump retorts that inflation would worsen if Harris is elected.

Although both sides' pledges could cause inflation, the market views the risk of inflation being higher if former President Trump is elected. Thierry Wizman, Global FX and Rates Strategist at Macquarie Group, stated that Trump's policies could raise the annual inflation rate by 1 percentage point.

According to CRFB, Vice President Harris's proposals for middle-class tax cuts and support for new homebuyers would require $1.7 trillion over ten years. Raising the minimum wage and exempting tips from taxes would cost an additional $100 billion to $200 billion. Even offset by corporate tax increases, an additional $800 billion to $900 billion would be needed.

Such inflationary presidential candidate pledges conflict with Fed monetary policy. The market expects the Fed to cut interest rates in September to prevent a recession, although inflation has not yet reached the Fed's 2% target. However, concerns are growing as both presidential candidates propose increasing fiscal spending. If prices rise again due to policy implementation, the Fed will be unable to lower interest rates.

Thorsten Slok, Chief Economist at Apollo Global Management, said, "If fiscal policy steps on the accelerator while inflation has not returned to 2%, it will complicate the Fed's work."

This content was produced with the assistance of AI translation services.