Can Trump Trump Inflation?

Americans are weary of ever-rising prices. The economy was one of the factors that pushed Donald Trump to victory. 

But can President Trump fix the inflation problem?

In this episode of the Money Metals' Midweek Memo, host Mike Maharrey looks at inflation in the context of a Trump presidency. He explains why he doesn't think inflation is going anywhere and there is not much the president can do about it -- through no fault of his own. Along the way, he covers the November Federal Reserve meeting and throws in a little political philosophy. He also shares some early projections on 2024 silver demand.

Mike says he keeps coming back to a phrase as he processes the presidential election results.

"The more things change, the more they stay the same."

It's not so much a reflection on the new president, but more of a characterization of the American political system.

Mike highlights the market reaction to Trump's victory.

"Stocks went up. The dollar strengthened. Bonds sold off, along with gold and silver. It’s really not surprising. We knew the safe haven trade would unwind once the election results were in. The fact that it wasn’t a disputed election sped that up. It’s also typical for gold and silver to sell off with Republicans taking control."

But Mike says he detects a less sanguine reason for the recent market movements. 

"I think there is also some realization that inflation isn’t going anywhere. I think that’s why we’re seeing bond yields rise and the dollar strengthen. I think a lot of people believe the Fed won’t be able to ease rates as quickly. Of course, that’s bad news on the other side of the equation. We still haven’t dealt with the fallout from the rate hikes. As I say over and over – this debt-riddled bubble economy can’t function in even a modestly high interest rate environment. The crash is coming. It’s just a matter of time."

Mike goes back and offers a little bit of nuance to comments he made in his show recorded on election day when he said he didn't think the election would change a lot, explaining that he wasn't favoring one candidate over the other, but was simply speaking in the context of his own political philosophy. 

"I think I’ve mentioned this before, but decentralization is at the core of my practical politics. I want less power in Washington DC, and more power in the state and local governments. As such, I am a staunch constitutionalist. I’m just never going to get excited about a president. Presidents aren’t supposed to do much in our constitutional system. I mean, the federal government isn’t supposed to be doing most of what it’s doing. So, no matter who the president is, and no matter what policies he’s advancing, if they aren’t federal powers authorized by the Constitution, I’m going to have a problem with it."

That's not to say one president won't be better than another. 

"So, I think on my election day show, some folks misunderstood and thought I was just being anti-trump. It’s not that at all. I’ll come right out and say it – I prefer Trump over Harris. I think he will be better than she would have been. I think he might drive some positive change."

That said, there are some things the president won't likely be able to change, not because of a lack of desire or will, but simply because the system will work against him.

"Inflation has arguably been the biggest economic issue facing Americans. I think that is a big part of what drove the Trump victory. People are bent under the pressure of ever-rising prices. But here’s the thing - we give presidents far too much credit for good economic outcomes and too much blame for the bad ones. Biden didn’t make the stock market go up. And Trump isn’t going to make inflation go down."

To understand Mike's position, you have to have a correct definition of inflation. 

"You know what makes inflation? Money printing. Period. Inflation is an increase in the supply of money and credit. A symptom of inflation is rising prices (price inflation)."

And here's the key to Mike's point.

Who primarily drives the money supply?

The Federal Reserve.

"And it isn’t doing anything to fix inflation. In fact, it has surrendered to inflation. Even as I speak, there is more inflation in the pipeline. And there isn’t thing one Donald Trump can do about it."

Mike jumps off from that point to give an overview of the November Federal Reserve meeting, calling it "unsurprising and bland."

In a nutshell, the Fed cut rates another 25 basis points, and the central bank's messaging walked a tightrope conveying next to nothing.

Mike says the most revealing thing Federal Reserve Chairman Jerome Powell said was that the general trajectory of interest rates will be down because lower bowering costs are necessary for the Fed to achieve its dual mandate of price stability and maximum employment. 

"It shows that the central bankers still worry that this higher interest rate environment will crack the bubble economy. And they’re right. This economy can’t function in this rate environment because it is loaded up with debt. The fact that the U.S. spent over $1 trillion in interest expense in fiscal 2024 reveals the extent of the problem. Again, this isn’t something a president can control. He can’t dictate monetary policy. He can scold Powell, but I don’t think Powell cares."

Mike notes that Powell emphatically declared he wouldn't resign and insisted the president can't fire him.

Mike summed it up, saying, "My impression of the Fed’s trajectory hasn’t changed much since it surprised us with a supersized rate cut in September. I still believe the Fed has surrendered to inflation. And that means Trump is going to have to contend with rising prices."

Mike also talks about the national debt. He expressed some hope that the Trump team will be able to cut the size of government, but he tempers that optimism with the stark reality - government spending is out of control, significant cutting is politically painful, and there is only so much fat to trim.

"One thing the federal government can do to tame inflation is cut the borrowing and spending and reduce the debt. But with all due respect to President Trump, I don’t think he can do it. I love the commitment to reducing the size of government. But I don’t think people realize just how much debt there is and how much the federal government overspends."

He also points out that there is only so much a president can really do. 

"He needs Congress to really make deep cuts. And I’m afraid there are enough establishment RINOS in Congress who will thwart any attempt to really slash spending. He may be able to slow down the increase in spending, but I would be willing to bet that year-over-year spending won’t go down."

To close out the show, Mike gives an overview of Metals Focus's 2024 silver supply and demand projections. Industrial silver demand is on track for another record high. This will drive the fourth straight market deficit with demand outstripping supply.

That leads to Mike's call to action. With the price of silver (and gold) down with the post-election correction, you have a buying opportunity. That means it's the perfect time to call Money Metals at 800-800-1865.

Articles Mentioned in the Show

Inflation Isn't Likely to Go Away

The Fed Hasn't Done Enough to Beat Price Inflation