In Donald Trump’s second term, some experts believe the inflation trajectory could continuously point upward and go higher, especially when tariffs, deficits and other policies that would increase inflation are factored in. While forecasting economic conditions isn’t an exact science, experts can speculate using knowledge about the past and some clues about the future.
Advertisement: High Yield Savings Offers
Powered by Money.com – Yahoo may earn commission from the links above.
Find Out: Mark Cuban: Trump’s Tariffs Will Affect This Class of People the Most
For You: 7 Things You’ll Be Happy You Downsized in Retirement
A report from Allianz Research provides insights into how inflation could unfold under Trump and his administration during round number two. The report shows that while some policies could increase inflation in the short term, the overall inflation path would be shaped by factors like the Federal Reserve’s actions and broader economic conditions.
GOBankingRates spoke to Maxime Darmet, senior U.S. economist at Allianz Trade, who co-authored a report by Allianz Trade research, titled “Trumponomics: the Sequel” on this very subject. Here are some key insights.
No matter the politics, President Trump has his work cut out for him when it comes to dealing with inflation. The U.S. economy was pretty sturdy before he took office for the second time, but it now shows interest rates climbing and general economic unrest.
“While the U.S. has remained remarkably resilient despite rising interest rates and global uncertainty, it has become more prone to inflation volatility, given a larger exposure to frequent supply shocks and structural labor shortages,” Darmet said. “Against this backdrop, demand-boosting policies — such as tax cuts — or supply-hurting policies — such as tariff hikes — could re-ignite inflation faster and push up interest rates.”
The White House administration should tread carefully with its economic plans. Big tax cuts might sound great at first — they put more cash in your wallet. However, if there are limited goods to spend that money on, it easily overheats the economy and spirals inflation even higher.
Read Next: Trump Wants To Eliminate Income Taxes: Here’s How Much Extra You’d Take Home If You Make $125K a Year
Trump never seems to miss the chance to double down on protectionist policies to boost U.S. manufacturing. He has proposed tariff increases, including 10% on all imports and 60% on Chinese goods.
The Allianz report discusses two potential scenarios — one in which the U.S. tariff rate rises from 2.5% up to 4.3%. However, another scenario, in which Trump implements all the tariffs he has threatened, could push the rate to around 12%.
“However, in both cases, we would expect Trump to target goods that are not critical for the U.S. economy, equivalent to 55% of imported Chinese goods and 70% of EU goods,” Darmet wrote. “China’s textiles sector and the U.S. transportation equipment sector would be the hardest hit.”
Despite some whiplash court decisions, Trump has successfully enacted a series of steep protective tariffs affecting nearly all goods imported into the United States. Between January and April 2025, the average effective U.S. tariff rate rose from 2.5% to an estimated 27% — the highest level in over a century.
Of course, Trump isn’t exactly working with a fresh economic slate in the White House, as he inherited the budget situation from Biden’s term. Trump’s bold promises of slashing taxes and ramping up spending quickly ran into some harsh fiscal realities.
He’ll have to perform some nifty accounting tricks to pull off his economic vision without sending bond market investors into a total panic over the stability of America’s finances. One potential gambit would be to hike all those tariffs and trade taxes to fund the tax cut promises while scaling back Biden’s pricier policy initiatives.
So, unless the Trump 2.0 economy is some world-beater of growth, most forecasters see the new administration ultimately having to pump the brakes on fiscal loosening after maybe a year of smaller tax cuts or spending bumps.
Otherwise, the whole economic agenda could wind up crumbling under the weight of unsustainable budgets and debt — something that fiscal conservatives in Trump’s party would likely refuse to accept. That deficit dynamic keeps economic advisors up at night as they game-plan Trump’s potential second term.
Trump has said a goal is to ramp up U.S. manufacturing and reduce foreign manufacturing relationships. However, the report suggests that such policies need to be carefully designed.
“To yield benefits, industrial policy must avoid the risk of targeting too many objectives. In that respect, Trump’s ambitious Strategic National Manufacturing Initiative (SNMI) may disappoint when set against its numerous goals and the reality that the U.S. does not have a competitive advantage in many sectors,” Darmet wrote.
The Fed’s response would shape inflation under the second Trump term.
“Against this backdrop, we would expect the Federal Reserve to be forced to pause its easing cycle in 2025 and the U.S. 10-year yield to stay above 4%,” Darmet wrote.
This could control inflation but weigh on growth and markets initially. The report highlights the delicate balance the Fed would face between inflation and economic impacts.
Caitlyn Moorhead contributed to the reporting for this article.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: I’m an Economist: My Predictions for Inflation Under President Trump
