Economists say inflation cannot be tamed until pandemic-era imbalances between supply and demand are rectified — a goal the Trump administration aims to achieve by unleashing private sector productivity.
The federal government’s balancing supply-and-demand disparities with increased deficit spending has become an unsustainable way of manipulating economic growth, fiscal policy experts told The Washington Times.
“Inflation is not a fatality. It is a policy,” said economist Daniel Lacalle, a professor at IE Business School in Spain. “The current burst of inflation was directly caused by excessive government spending and deficits.”
Alexander William Salter, an economics professor at the Rawls College of Business, pointed out that the nation’s $36.22 trillion debt this month is now 120% of the country’s gross domestic product.
“Deficit spending, encouraged by both the Biden and [the first] Trump administrations, is excessive and dangerous,” said Mr. Salter, a research fellow at the free-market Independent Institute in Oakland, California.
Mr. Lacalle said the U.S. needs time to transition from an economy driven by the “placebo” of government spending — which he said accounted for 25% of total GDP growth under the Biden administration from 2021 to 2024 — to one driven by private sector productivity.
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The first Trump and Biden administrations poured trillions of taxpayer dollars into struggling businesses, families, and state and local budgets hurt by COVID-19 shutdowns. Meanwhile, U.S. credit card debt grew to a record $1.21 trillion in the fourth quarter of 2024, up 7.3% from the previous year.
President Trump now is pursuing an aggressive program of tariffs on imported goods, cuts to government spending and reducing regulations on the U.S. energy sector as he strives to encourage increased domestic production of goods and services.
Lower gasoline prices and housing costs prompted inflation to cool last month in a much-needed win for the president, whose trade agenda has spooked Wall Street and could raise prices if suppliers pass the cost of looming tariffs to consumers.
The Consumer Price Index rose 0.2% in February, down slightly from the previous month and lower than economists’ expectations. The index increased 2.8% in the 12 months ending in February, slower than the annual rate of 3% reported for January.
Nevertheless, the annual increase in consumer prices remained higher than the 2% rate the Federal Reserve has set as a historic target for low and predictable inflation.
“The Trump administration will return inflation to the Federal Reserve’s 2% target by reducing inflationary government spending and unleashing American energy,” said Alfredo Ortiz, CEO of the right-leaning Job Creators Network. “These policies, along with help from Congress extending and expanding the Tax Cuts and Jobs Act, will lead the country into an age of shared economic prosperity by empowering its small business backbone.”
Chip Lupo, an analyst for the personal finance website WalletHub, said it will take months to know whether Mr. Trump’s policies have stabilized the economy “without seriously hurting people’s purchasing power.”
“The most likely scenario in which prices may drop over the next few months is if the Federal Reserve continues to maintain its current monetary policy stance, particularly with high interest rates,” Mr. Lupo said. “This could lead to reduced consumer and business spending, helping to curb inflationary pressures.”
Interest rates
The Federal Reserve, which controls U.S. monetary policy, raised interest rates during most of the Biden administration to drive down spending. It began cutting rates in September as the labor market weakened and paused them in January as the Trump administration’s plans for a trade war with China and Canada spooked investors.
On Wednesday, the Fed extended its pause of interest rates at a target range of 4.25% to 4.5%, the level it reached in December.
The central bank’s benchmark interest rate, which limits how much commercial banks can charge borrowers for loans, directly affects economic activity and inflation. Higher rates are aimed at reducing inflation, discouraging consumer spending on big-ticket items such as cars. They also curtail business investment.
In a March 11 interview with CBS News, Commerce Secretary Howard Lutnick said Mr. Trump’s economic policies are “worth it” even if they lead to a recession — a claim many economists strongly dispute.
“The only reason there could possibly be a recession is because the Biden nonsense that we had to live with,” Mr. Lutnick said. “These policies produce revenues. They produce growth. They produce factories being built here.”
Traditionally defined as half a year of economic shrinkage, a recession could cost millions of jobs and billions of dollars in lost income.
Economist Bryan Cutsinger, a professor at Florida Atlantic University, said the president’s lack of clarity about tariffs makes it difficult to weigh their benefits against the costs of a recession.
“Recessions are very bad, especially for those at the lower end of the income distribution,” Mr. Cutsinger said. “Further, they can have long-lasting negative effects on people and families.”
At the same time, he praised Mr. Trump’s support for reducing regulations on domestic energy and cutting taxes as ways of stimulating economic growth by encouraging competitiveness and productivity.
“These reforms, if successful, will boost economic growth, thereby driving prices lower for a given amount of aggregate demand,” Mr. Cutsinger said. “In other words, we can get lower prices and faster economic growth at the same time.”
Tariffs
Experts say the success of Mr. Trump’s tariffs will depend on whether Canada, China and other trading partners yield to his demands for greater parity in trade.
Robin Valadares, a personal finance coach and founder of Financially Fulfilled Physio, said purchasing power must also keep up as import costs rise and supply chains adjust to increased domestic production.
“If wages are stagnant while the cost of living keeps rising, that GDP growth isn’t translating into a better life for most people,” Mr. Valadares said. “It’s like baking a bigger pie, but everyone’s slice is getting smaller.”
Many economists say Mr. Trump is unlikely to knock consumer prices back down to pre-pandemic levels.
Some said he could, at best, slow price growth by influencing the Federal Reserve to reduce money production, cutting government spending and deregulating technological innovations.
“Trump is great on cutting back on the bureaucracy and lowering government expenditures — and awful on tariffs,” said Walter Block, an economist at Loyola University New Orleans.
