Trump’s economic plans could spark inflation in US, IMF warns

 

IMF Economist Warns Trump’s Economic Policies Could Trigger Inflation

Pierre-Olivier Gourinchas, the chief economist at the International Monetary Fund (IMF), has raised concerns that Donald Trump’s proposed economic policies could lead to a resurgence of inflation in the United States. Speaking to AFP ahead of Trump’s return to the White House, Gourinchas warned that the president-elect’s plans to impose higher tariffs and tighten immigration controls could strain the economy’s supply side, ultimately driving up prices.

In addition to trade and immigration measures, Trump’s proposals to cut taxes and roll back regulations may further contribute to inflation by stimulating consumer demand, Gourinchas added.

“The key takeaway is that when we evaluate economic risks for the U.S., we see an increased likelihood of rising inflation,” he stated.

The economist’s remarks come as the IMF prepares to release its latest World Economic Outlook (WEO) report. However, due to uncertainty surrounding Trump’s policies, the WEO does not account for his proposed economic changes. Despite this, the IMF has revised its global growth projections upward and issued a notably improved forecast for the U.S. economy.

While many economic analysts believe that Trump’s trade and immigration policies could have inflationary effects, the former president and his team maintain that his broader economic agenda will ultimately help stabilize prices.

Market Reactions and Federal Reserve Projections

Investor expectations for Federal Reserve interest rate cuts in 2025 have shifted in response to economic conditions. Data from CME Group suggests there is an 80% chance that the Fed will implement no more than two quarter-point rate reductions this year.

The IMF projects that the Federal Reserve will lower rates by 0.5 percentage points in both 2025 and 2026. This forecast aligns with the median estimate from Fed officials surveyed in December.

China Faces Economic Slowdown and Deflation Risks

In contrast to the inflation concerns in the U.S., China’s economy faces different challenges. The world’s second-largest economy is struggling with a deepening property sector crisis and uncertainty over global trade policies.

The WEO report forecasts a continued slowdown in China’s economic growth, though government-led fiscal stimulus measures may help cushion the decline.

“There is a risk that China could enter a deflationary cycle, particularly as the real estate crisis worsens,” Gourinchas explained.

While the IMF acknowledges that Chinese policymakers have taken steps in the right direction, Gourinchas emphasized that additional measures may be necessary to prevent a more severe economic downturn.

Recent data from Beijing showed that China’s economy grew by 5% last year, slightly exceeding expectations but still falling short of the 5.2% growth recorded in 2023.