Economists are starting to model the effects of President-elect Donald Trump’s plans to raise tariffs, cut taxes and restrict immigration. The upshot: Inflation and interest rates are likely to be higher for at least the next two years than forecasters anticipated before the election.
The consumer-price index is now expected to rise 2.7% in December 2025 from a year earlier, according to the average forecast of 73 economists who answered The Wall Street Journal’s quarterly survey. In October, the panel saw consumer prices rising 2.3% in 2025.
“Risks to inflation and interest rates are to the upside with a Trump administration,” said Augustine Faucher, chief economist at PNC Financial Services Group.
For the average household, that higher projected inflation over a full year would equate to about $600 more in costs, based on the latest data on consumer spending.
Trump will take office on Monday with a considerably stronger economy than he left in 2020. The U.S. continues to grow much faster than other advanced economies, the International Monetary Fund noted Friday, and unemployment remains low by historical standards.
However, inflation is higher than four years ago, and while it has come down considerably, public anger at soaring prices is a key reason Trump has returned to the White House.
On the campaign trail, Trump repeatedly promised to lower prices by, among other things, increasing drilling for oil.
In the latest Journal survey, economists also raised their inflation forecasts for 2026, projecting the CPI will rise 2.6% at the end of that year instead of the 2.3% they expected in October, according to the survey, conducted Jan. 10-14. That would still be a lower inflation rate than the 2.9% recorded in December.
The extent to which Trump will follow through on his economic promises remains unknown, as are the impacts on prices, employment and growth. During the campaign, Trump floated tariffs of 60% or more on China and 10% to 20% on other countries. In late November, he said he would impose tariffs of 25% on Mexico and Canada and 10% on China on day one of his presidency.
The Journal asked economists what tariffs they assumed that Trump would impose. On average, those responding projected import duties would rise 23 percentage points on China and 6 percentage points on the rest of the world, for a 10-percentage-point higher average tariff on everyone. This, they estimated, would add 0.5 percentage point to the CPI inflation rate in the fourth quarter of this year.
“Tariffs are particularly ill-timed given the persistence of inflation following the pandemic-induced price shock,” said Joe Brusuelas, chief economist at RSM US.
But several noted that potential exemptions to tariffs, or efforts by importers to skirt the levies by reorganizing their supply chains or shipments, add considerable uncertainty to such projections. Not every economist answered every question in the survey.
Trump’s victory over Vice President Kamala Harris isn’t the only thing that has changed the economic outlook since the previous survey. Inflation and economic growth also came in firmer than expected over the fall. In October, economists expected the CPI to end 2024 up 2.5%, but it rose 2.9%. Fourth-quarter GDP, meanwhile, is now expected to expand 2.5% from a year earlier, rather than the 1.7% projected in October. They see a 22% likelihood of a recession in the next 12 months, the lowest level since January 2022.
Those changes in the outlook, combined with the possible effects of Trump’s economic policies, prompted Federal Reserve policymakers to bump up their 2025 inflation forecasts, as well.
Faced with stickier inflation, economists expect the Fed to keep interest rates higher through 2027 than previously forecast. The midpoint of the range of the Fed funds rate, currently 4.375%, is now seen ending the year at 3.89%, up from the October average projection of 3.3%.
Economists now expect the 10-year Treasury bond yield to end 2025 at 4.4%, up from an October projection of 3.7% though down from 4.6% Friday afternoon. All else equal, that would likely translate into higher mortgage rates by a similar magnitude.
Economists modestly revised their forecasts for gross domestic product, the broadest measure of the economy’s output of goods and services. They now see GDP expanding 2% in 2025, according to the survey, up from an October projection of 1.9%. They forecast 2% growth in 2026, down from 2.1% in their October forecast.
The effects of Trump’s policies on the growth outlook are mixed. Economists in the Journal’s survey expect Trump’s tariffs to subtract 0.2 percentage point from 2025 GDP growth.
In general, tariffs tend to weigh on economic output by raising the cost of key inputs and reducing disposable income, and by bringing retaliation by trading partners, which often reduces American exports. Trump’s plans to restrict immigration and step up deportations would likely crimp the supply of labor. The magnitudes of both, though, are highly uncertain.
On the other hand, some of Trump’s plans may help growth. His proposed new and extended tax cuts, which economists in the Journal survey project adding $4 trillion to federal deficits over the next decade, could goose overall demand and, along with promised deregulation, boost incentives to work and invest.
Economists expect the unemployment rate to end 2025 at 4.3%—roughly the same as expected three months ago—and forecast payrolls will rise by 121,000 a month in the fourth quarter, down from an October forecast of 139,000.