On his first day in office, President Donald Trump issued a memorandum directing federal agencies to explore solutions for one of the country’s biggest financial concerns: inflation. This effort aligns with his promise during the inaugural speech to use the power of his cabinet to address record inflation and bring down costs for American consumers.
It came as many Americans criticized former President Joe Biden over handling increasing prices, an issue that also fueled Trump’s election campaign. His administration will focus on increased energy drilling as a way of reducing oil and gas prices as Trump reiterated, “We will drill, baby, drill.”
Federal Review to Fight Inflation
Trump’s executive order calls for a 30-day review by federal agencies to identify ways to reduce the costs of essential goods and services, such as housing, healthcare, food, and energy. His goal is to involve more people in the workforce while addressing the costs that Americans face daily.
The main policy push for the administration involves opening more federal lands for energy exploration, but experts believe that Trump may also aim to ease regulations in various sectors and cut government spending. “It’s going to be energy, deregulation, and driving down waste in government spending to free up scarce resources,” said Joe LaVorgna, former chief economist of the National Economic Council.
Deregulation and Energy Policies
Deregulation is one of Trump’s key strategies to reduce inflation by lowering compliance costs in various sectors. According to Mark Zandi, chief economist at Moody’s Analytics, deregulation can eventually lower prices, but it may take years to implement, and the effect may not be immediate. Meanwhile, Trump is pushing for energy independence, particularly through increasing oil production in the Arctic National Wildlife Refuge, which he claims could halve gas prices. Still, it’s worth mentioning that U.S. oil production already has reached all-time highs and global factors weigh most heavily in price.
Housing: A Large Factor in Inflation
The cost of housing has been one of the major components of inflation, with even median home prices and rents skyrocketing over recent years. Part of the reason for the lack of affordable housing is due to restrictive zoning laws and federal environmental regulations, which Trump intends to ease. If local zoning becomes less tight and federal permits more easy to obtain, experts believe that construction costs could be lower, making housing cheaper for consumers.
Mark Zandi adds that although deregulating housing policies may provide relief, imposing tariffs on building materials could cancel these benefits out. Moreover, a reduction in immigration would intensify housing shortages because immigrants represent a large part of the workforce in construction.
Labor and Supply Chain Solutions
The Trump administration is looking to ease labor market constraints by imposing work requirements on recipients of government assistance programs like Medicaid and food stamps. This could increase the labor supply and ease wage pressure, which has been contributing to inflation.
In addition, the Trump administration will address the truck driver shortage, which is an important factor in easing supply chain disruptions. The American Trucking Association estimates a need for 60,000 additional drivers to meet demand. Trump’s proposal to allow younger drivers to cross state lines could alleviate some bottlenecks and reduce freight costs.
Health Care and Appliance Costs
Here, Trump targets “rent-seeking practices” that inflate healthcare costs, from the middlemen in insurance and billing. His administration will abolish regulations that could lower prescription drug prices, although just recently he rescinded a Biden administration plan focusing on reducing healthcare costs for Medicare and Medicaid beneficiaries.
Another objective he has set for himself is reducing energy efficiency standards for household appliances in the aim of reducing energy consumption and greenhouse gas emissions. Experts believe this could lead to lower appliance prices for consumers.
Energy and Tariffs
His energy policies also propose expanding drilling in protected areas to further increase American oil output. However, oil prices are also determined by the global market; increased domestic production is unlikely to help stabilize prices even when the domestic price is high.
Trump’s tariffs policies-the imposition of tariffs on imports from Canada, Mexico, and China-will drive up prices. These increases can offset any gains from inflation reduction.
Deficits and Government Spending
A new department under Trump’s administration recently created is focused on cutting the federal budget approximately by $1 trillion. A reduced budget would decrease government demands for more goods and services, which would theoretically reduce inflationary forces. Nevertheless, the extension of tax cuts implemented in his first term would hugely increase deficits, potentially adding to inflation in the long term.
Economists, including Zandi, note that Trump’s economic policies will have little impact on reducing deficits and could instead fuel inflation because of increased government spending.
In inflationary strategies by Trump, while energy independence, deregulation, and diminution in government waste have been identified as key strategies to deal with inflation, experts warn that policies like tariffs and immigration restrictions will have inflationary long-run impacts. Overall, the policy impact of his measures on lowering prices for U.S. consumers continues to be uncertain.