Project Syndicate

Trump’s Plans for the Fed Would Revive 1970s-Style Inflation

Former US President Donald Trump, whose preference for lower interest rates and a weaker dollar was evident during his first term, is reportedly planning to override the Federal Reserve’s independence if he returns to the White House in 2025. The result would be a toxic inflationary cocktail.

BERKELEY – If the past three years have taught us anything, it is that low inflation cannot be taken for granted. Even though US inflation remains above the Federal Reserve’s 2% target for price stability, former President Donald Trump’s advisers are discussing a new and dangerous approach to monetary policy. If implemented during a second Trump presidency, it would undo the decades of hard work that allowed the Fed to reduce annualized inflation by nearly four percentage points since 2022, to roughly 3%, at little or no cost to the real economy.

Trump’s advisers are reportedly considering two complementary policy changes. One proposal reportedly involves increasing direct presidential control over the Fed’s interest-rate decisions and rulemaking. Simultaneously, Trump’s trade team, led by former US Trade Representative Robert Lighthizer, apparently wants to weaken the dollar’s exchange rate.

While some Trump advisers have denied any plans to devalue the dollar, Trump’s preference for lower interest rates and a weaker currency was evident during his first term. The proposed policies would make it easier for him to override the Fed’s independence and achieve both objectives. The result would be a potent inflationary cocktail.