President Donald Trump has reversed the Biden economic policies that helped spur historic inflation over the last four years. But the immutable laws of economics say a Trump turnaround in the economy won't happen overnight. In fact, the situation Trump inherited from Biden may be worse than initially thought. The latest inflation data shows the Consumer Price Index rose at an annual rate of 3% in January, the highest annual number since last spring and a signal that prices are still heading in the wrong direction.
While Trump has touted his policies leading to more economic growth and has called on the Federal Reserve to lower interest rates, the reality is that heating up the economy also tends to heat up inflation, as spending and demand then go up. "As long as people are spending and the economy is 'bubbling,' it's probably going to take a long time to get to the Fed's target rate (of 2%)," says Richard Rosso, certified financial planner. "I don't even know why they cut rates even once last year."
Trump also faces a challenge in that many of the factors currently driving up prices are things beyond government policy or control. "Prices for insurance, for eggs, for coffee, for things subject to natural disasters, subject to bird flu, drought, things like that...those are going to take longer to actually turn," says Rosso.
Complicating matters even further is the state of Americans' personal finances as prices continue to soar. A Bankrate survey finds more than one-third of Americans now have more credit card debt than emergency savings. With cash depleted, Rosso predicts if prices for things like eggs remain high, many people will just stop buying them. "So where there's inflation in some parts of the economy, there will be deflation in others," he tells KTRH. "But here's the point---(inflation) is not falling to the level the Fed wants, and it's probably going to take a long time to get there."
"That means we're not going to see cuts in interest rates, for probably a good period of time."
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