Why Trump’s return could spark another bout of inflation and delay interest rate cuts

Inflation is likely to rise in the United States and around the world if newly elected US President Donald Trump follows through on his campaign promises to cut taxes, crack down on immigration and hike tariffs on all imported goods.

Inflation is likely to rise in the United States and around the world if newly elected US President Donald Trump follows through on his campaign promises to cut taxes, crack down on immigration and hike tariffs on all imported goods. Together with a Republican majority in the US Senate, Trump’s historic reelection, which CNN projected Wednesday, puts the former president in a strong position to implement his potentially radical economic agenda. US stock markets opened sharply higher, buoyed by Trump’s decisive victory, while the dollar is rallying against major currencies as traders price in higher domestic inflation and therefore fewer interest rate cuts by the Federal Reserve. (Higher interest rates tend to boost the value of a currency by attracting more capital from abroad as investors seek bigger returns.) Investors are also acting on expectations that Trump’s plans for higher tariffs will hurt the global economy, increasing demand for dollars, which are considered a safe haven, according to Matthew Ryan, head of market strategy at financial technology firm Ebury. The stronger dollar reflects expectations that Trump will cut taxes, hike tariffs and clamp down on immigration, which are all inflationary and likely to mean more elevated interest rates in the years to come, according to Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown. “Investors are bracing for tariffs… which will push up the price of imported goods for American shoppers,” she wrote in a note Wednesday. Trump’s “vow to kick out immigrants with waves of deportations could also have economic ramifications, potentially pushing up wage bills for companies,” she added.