A punishing 2½-year fight to bring inflation down appears to be succeeding. The election could change that.

Inflation has fallen thanks to higher interest rates and big assists from healed supply chains and an influx of workers. But whether borrowing costs and price growth continue to ease next year could turn heavily on policy choices by Donald Trump or Kamala Harris. 

Both candidates support policies to boost growth that might keep inflation from falling any farther. But economists and even conservative-leaning advisers worry that the ideas backed by Trump, in particular, risk stoking the embers of inflation. Those include his proposals to slap across-the-board tariffs on imported goods, to deport workers, and to lean on the Federal Reserve to lower interest rates.

“Put them all together, these levers are moving more in an inflationary direction. I’m legitimately worried about inflation worsening in 2025,” said Brian Riedl, a former Republican Senate aide now at the conservative Manhattan Institute.

Moreover, a second Trump term would unfold against a much different economic backdrop than his first one, when price pressures had been low and stable for many years. In recent days, bond yields have risen on expectations that Trump will win the presidency and that his new term would bring higher deficits, inflation or both.

Given the changed economic environment and the farther-reaching policies Trump has proposed, it is reasonable to worry that inflation threats would be magnified in a second Trump term, said Marc Short, who served as legislative-affairs director in the Trump White House. Trump’s proposals could draw him into new battles with the Fed, which is mandated to keep inflation low.

Inflation is largely driven by global forces, not individual presidents. During Trump’s term, the overhang of the 2008 global financial crisis kept demand and price pressures subdued globally. Inflation soared beginning shortly after President Biden took office, as the U.S. reopened from the pandemic. 

Strong demand from that reopening received big booster shots from ultralow interest rates and Biden’s fiscal stimulus. All of this ran headlong into crippled supply chains and discombobulated labor markets. Inflation hit 9.1% in 2022, after Russia’s invasion of Ukraine roiled global energy markets. 

Inflation has fallen steadily as supply problems have sorted themselves out and as the Fed has upped interest rates to prevent further overheating or bubbles. The consumer-price index slipped to 2.4% last month, close to where it was before the pandemic. Looking ahead, global trends will likely continue to be the main inflation drivers, and presidents can take steps that add to or subtract from those forces. 

Harris has promised to tackle the cost-of-living crisis by boosting home construction, cracking down on alleged price gouging, and expanding a tax credit for families with young children.

She has committed to offsetting any new spending programs with tax or other revenue increases but hasn’t proposed significant outright deficit reduction. “If Democrats hold on to power, I don’t think you’re going to see a big spike in inflation, but we may find that it remains somewhat sticky and stubborn,” said Riedl.

Trump wants to extend pieces of his 2017 tax-cut law that expire after 2025 while further lowering corporate tax rates. He has also proposed eliminating taxes on workers’ tips, overtime pay and retirees’ Social Security benefits.

Changes to trade and immigration policy, where the president has more freedom to act without seeking approval from Congress, make Trump a bigger wild card. 

“If he does the things he says he’s going to do, straight up, he will be hitting the U.S. economy with a negative supply shock. Prices will go up, and the capacity of the economy to supply goods and services will go down,” said Adam Posen, president of the Peterson Institute for International Economics.

A Peterson Institute study estimated that deporting immigrants would significantly reduce economic output while boosting inflation. With fewer workers available, businesses would have to either raise wages and prices or accept lower margins.

Supporters of the Trump administration’s immigration proposals say the economy will be better off if Americans earn more doing jobs currently held by foreign workers. 

“If we in fact restrict the labor market to American workers, they will get paid more, and prices will then have to be higher,” said Oren Cass, founder of American Compass, a think tank that is supportive of Trump’s trade and immigration agenda. “That sounds to me like how markets are supposed to work.”

But many economists say labor markets are more complex and warn of ignoring knock-on effects of shrinking the workforce. Economists at the University of Colorado, Denver, studied the deportations carried out by the Bush and Obama administrations between 2008 and 2014. They found that, for every one million unauthorized workers expelled from the U.S., 88,000 American workers lost their jobs. 

That is because immigrant workers in certain industries such as food processing, agriculture, construction and hospitality don’t necessarily compete with U.S. workers. If current workers are expelled, rather than hire more native-born workers, those businesses are likely to scale back production. Fewer sales, in turn, lead to fewer higher-paying jobs held by native-born workers that cater to those industries.

Business leaders and economists agree that U.S. consumers will bear the cost of tariffs. “We will pass those tariff costs back to the consumer,” said Philip Daniele, chief executive of AutoZone, in an earnings call last month. 

Trump has floated an across-the-board tariff of 10% and tariffs on Chinese imports of 60% or higher. Both are much farther reaching than anything he previously attempted.

Advisers to Trump say his tariffs wouldn’t be inflationary, either because a more limited series of tariffs in 2018 and 2019 didn’t produce inflation, or because he would simply use the threat of larger tariffs to gain leverage.

“Just like 2016, Wall Street and so-called expert forecasts said that Trump policies would result in lower growth and higher inflation…. Actual growth and job gains widely outperformed these opinions,” said Brian Hughes, a senior campaign adviser. 

Some conservative economists say Trump’s promises to cut regulations, especially in the energy sector, could lower inflation by removing production barriers. 

Short, Trump’s former legislative-affairs director, said the first administration didn’t cut spending as promised. Likewise, he said, investors are underestimating the risk that a second administration will be less friendly to businesses by seeking to pick winners and losers.

“The first administration was very deregulatory, and I’m just not sure that’s what you’re going to get in a Trump 2.0 because most of the people around the president now clearly see a more expansive role for government in the economy,” said Short.

For the Fed, figuring out the downstream impacts of higher tariffs would be complicated and uncomfortable. Anything that rekindles inflation could lead officials to slow or even halt plans to reduce interest rates. They began dialing rates down from a two-decade high last month.

Trump, who repeatedly pressed for lower rates when he was in office, would be able to name a new Fed chair in 2026. Short predicted “a very active president as far as interaction with the Fed.”

Fed officials might conclude that tariffs are akin to a tax hike that weakens demand. In 2019, higher tariffs roiled stock markets and threatened to chill business investment. The Fed cut rates after concluding the trade war’s negative hit to economic growth would overwhelm any inflationary impacts.

Some believe the central bank could remain neutral. At a conference this summer, Fed governor Christopher Waller, a Trump appointee, suggested that if tariffs cause a one-time price increase, “it seems like the ultimate supply shock that a central bank should just look through.”

Others worry tariffs could stoke inflation. For example, workers might start demanding higher wages because prices are going up. U.S. trading partners could retaliate by placing tariffs on other products, initiating a rolling trade war. “That, to me, sounds more inflationary as opposed to a one-time change in the price level,” said Chicago Fed President Austan Goolsbee in an interview this summer.

Moreover, the Fed might have a hard time standing pat if prices rise because officials initially misjudged price run-ups in 2021 as “transitory.” Once price pressures spread, the Fed raised rates aggressively to make sure companies and workers wouldn’t expect high prices to be the new norm. “It’s legitimate to worry that if you get a second round of inflation so soon after the first one, it’s going to be much harder,” said Posen.

Rising budget deficits pose a final source of concern. Some analysts fear a growing list of spending and tax-cutting promises from both candidates will lead deficits to rise because politicians will underestimate their price tag. Economists say the country would be better off if budget deficits were lower and the Fed was able to reduce interest rates further. 

The Committee for a Responsible Federal Budget, a group that advocates for deficit reduction, estimates Harris would add around $3.5 trillion to the deficit over the coming decade, while Trump would add $7.5 trillion.

For Trump, the combination of higher deficits and inflation-stoking immigration and tariff policies threaten to set off a chain reaction in the bond market, whereby investors demand higher yields for the risk of holding Treasury securities.

“If he starts to get into those battles with the Fed, if countries start to retaliate, at what point do markets get really edgy?” said Robert Zoellick, a former World Bank president and a top trade and State Department official for George W. Bush. “It could set off some economic explosions. Once you start to unleash these forces, things can escalate quite dramatically and quite quickly.”

Ohio Sen. JD Vance, Trump’s running mate, said he had some concern about how global bond investors would respond to a second Trump term. “Do the bond markets, do the international investors…do they try to take down the Trump presidency by spiking bond rates?” Vance said in an interview with conservative political commentator Tucker Carlson last month.

He highlighted how bond-market turmoil in the U.K. two years ago prompted the resignation of former Prime Minister Liz Truss. “Interest rates shot through the roof,” he said, “and took down her government in a matter of days.”