Economists Caution That Trump's Policies Could Inflate Inflation and Deficits More Than Harris's

Most economists believe that Donald Trump's economic policies would lead to increased inflation, higher interest rates, and larger deficits compared to those proposed by Kamala Harris. This conclusion comes from a Wall Street Journal survey conducted from 4 to 8 October, echoing similar findings from July.

The gap in economic impact appears to widen with the introduction of both candidates' new policies. Harris's proposals include new financial credits for newborns and home purchases, while Trump aims to reduce taxes on overtime pay, Social Security, auto loans, and state and local taxes.

Economists Warn of Accelerated Inflation Under Trump’s Policies Amid Trade Tariffs

In the recent survey, 68% of economists predicted that Trump's policies would accelerate inflation, an increase from 56% in July. Conversely, only 12% believed inflation would rise under Harris.

Dan Hamilton, an economist from California Lutheran University, noted a shift in his perspective. He attributed this change to Trump’s escalated trade stance, which now includes tariffs of 10% to 20% on all imports, alongside a significant 60% tariff on Chinese goods. Economists recognise that such tariffs do not solely affect foreign exporters but are passed onto American consumers through increased prices.

Philip Marey, a senior strategist at Rabobank, warned that consumers might face unexpected financial burdens due to these policies.

Trump’s Tax Policies Projected to Worsen Federal Deficits and Increase Interest Rates

Trump's tax policies, which include eliminating taxes on Social Security income and lowering taxes for Americans abroad, are expected to exacerbate federal deficits. The Committee for a Responsible Federal Budget estimates these policies could add approximately $7.5 trillion to the federal deficit over the next decade, more than double the impact of Harris's proposals.

The survey revealed that 65% of economists expect Trump's policies to put upward pressure on the deficit. Higher borrowing as a result of these plans is likely to lead to increased interest rates, with 61% of economists agreeing that rates would be higher under Trump, adversely affecting loans, mortgages, and credit card debt.

When assessing Trump's proposed tariffs' effects on domestic manufacturing jobs, 59% of economists indicated employment might decrease over the next three to five years, while only 16% expected an increase.

Harris Advocates Targeted Social Programs Amid Economic Growth Debate

While Kamala Harris is not positioning herself as a fiscal conservative, her proposals are less extreme compared to Trump's. Her focus on targeted social programs, such as home buying credits and assistance for families, is anticipated to be less financially burdensome than Trump’s broad tax cuts and tariffs.

Opinions on economic growth differ among economists; 45% predict faster growth under Harris, while 37% favour Trump's approach.

Overall, Trump’s policies are perceived as a risk to long-term financial stability, potentially resulting in a temporary economic boost at the expense of heightened inflation and deficits.

Economists Show Increased Optimism as Economic Projections Improve

Despite these concerns, economists report increased optimism about the U.S. economy since the last survey. GDP growth for the fourth quarter of 2024 is now projected at 2.2%, up from 1.7%.

Inflation is also expected to decline, with predictions of a 2.5% rate by year-end, down from earlier estimates of 2.8%. Unemployment rates are anticipated to remain steady at 4.2%, and recession forecasts have decreased, with only 26% of economists expecting a downturn within the next year.

Federal Reserve Chair Jerome Powell's performance rating has also improved, with 45% of economists awarding him an “A” grade, a significant rise from 20% a year ago.