At the New York Times, Jeanna Smialek reports that economists are worried President-Elect Trump will stoke inflation. Voters returned Trump to office largely because of the economy, especially the high cost of living. “But how Mr. Trump’s policies would help on costs is unclear,” Smialek writes. In fact, some experts think his “proposals could instead make inflation worse.”

Smialek discusses several policies that might ratchet up inflation. First is “across-the-board tariffs on US trading partners and especially large ones on China.” Next is “tax cuts that could leave consumers and companies with more spending money.” Finally, there are his proposals to “restrict immigration,” which would raise labor costs.

We should have a robust public debate about the costs and benefits of Trump’s economic agenda. But long-lived price growth isn’t likely to be among those costs. Even if these policies result in goods and services becoming more expensive, we should expect prices to rise quickly and then stay there. The sustained dollar depreciation we saw from 2021 to 2023 isn’t a concern.

Tariffs on imports definitely will make imports more expensive. That raises prices for American consumers. Also, many imports, such as steel or rubber, are used by American firms to produce goods and services. Hence business costs will also rise. 

But that’s not the same thing as inflation. We’re looking at a relative price effect here. Specific goods and services will get more expensive. Depending on how those goods enter into widely cited price indexes, such as the CPI or PCEPI, it may seem like inflation rises. But really the transition to a higher average level of prices simply reflects changes in particular markets as a result of public policy. Expect a fast transition to higher prices, not perpetual price growth.

What about tax cuts? Households and businesses keeping more of their money, instead of sending it to Uncle Sam, doesn’t cause inflation. If anything, it may make inflation slightly more mild: lower taxes means more investment, creating productivity increases across the economy. The result should be faster GDP growth. All else being equal, supply-side improvements like these make price hikes more mild.

More generally, inflation happens when aggregate demand (total spending on goods and services) grows faster than aggregate supply (the goods and services themselves). Tax cuts, budget deficits, and similar changes in the government’s fiscal stance don’t cause aggregate demand to change very much. Monetary policy, not fiscal policy, drives total spending. 

The Fed uses its power over total spending to track economic fundamentals. At this week’s FOMC press conference on November 7, in response to a query by Steve Liesman about the effects of deficits on interest rates, Fed Chair Jerome Powell insisted the Fed would “follow” policy changes by Congress. They would try to model and keep up with changes in the equilibrium interest rate. Powell’s remarks are a good description of neutral monetary policy. The Fed ultimately wants to adjust monetary conditions such that variables like unemployment and interest rates approximate their natural values. Both the level and growth rate of the price level (the latter of which is inflation) depend on how deft the Fed is at this balancing act.

Trump has some thoughts on changing how the Federal Reserve works. Those reforms might be a source of inflationary pressure if they subordinate monetary policy to short-term political calculations. Then again, they might not. Regardless, it is distinct from the usual fiscal-policy-causes-inflation argument.

Finally, there’s the immigration argument. It’s true that mass deportations, for example, would reduce the labor supply. All else being equal, this raises wages, which would likely result in higher final goods and services prices. But all else isn’t equal. Immigrants aren’t just suppliers of labor. They’re also demanders of labor. Immigrants consume goods and services, too, which contributes to the demand for those goods and services. Thus, there’s an indirect demand for the labor that makes the goods and services immigrants consume. Deportations would reduce both the supply of and the demand for labor. The net effect on wages is ambiguous.

Let me be clear: I think deportations make us poorer by reducing the availability of real goods and services. But that isn’t the argument the economists Smialek cites are making. I don’t think we can have a strong or definite opinion on what deportations will do to the price level. On the other hand, I think we can be fairly certain deportations won’t result in higher price level growth for a lengthy period of time.

On the other hand, consider Trump’s promise to bring prices back down. This won’t happen either. The inflation we experienced from 2021-3 permanently raised the price level. The best we can do is improve households’ purchasing power by boosting overall economic growth. Trump has vowed to do this, both with tax cuts and broad-based deregulation. If supply-side reforms result in, say 0.3 percent faster GDP growth per year, then inflation should slow down by 0.3 percent per year, too. When fueled by productivity growth, economic growth also translates into wages rising more quickly. That’s our best shot for clawing back some of the lost purchasing power.

In conclusion, the arguments that Trump’s economic proposals are inflationary are rather weak. Dollar depreciation is not among the plausible reasons to dislike his plans. Those concerned about inflation should keep their attention on monetary policymakers.