Why Trump’s return could spark another bout of inflation and delay interest rate cuts

London CNN —

Inflation is likely to rise in the United States and around the world if newly elected US President Donald Trump follows through on his campaign promises to cut taxes, crack down on immigration and hike tariffs on all imported goods.

Together with a Republican majority in the US Senate, Trump’s historic reelection, which CNN projected Wednesday, puts the former presidentin a strong position to implement his potentially radical economic agenda.

US stock markets opened sharply higher, buoyed by Trump’s decisive victory. Treasury yields — or market interest rates — spiked, while the dollar has rallied against major currencies, partly as traders price in higher domestic inflation and therefore fewer interest rate cuts by the Federal Reserve. (Higher interest rates tend to boost the value of a currency by attracting more capital from abroad as investorsseek bigger returns.)

Trump’s proposed economic policies — including deporting immigrants, across-the-board tariffs and increased political influence on the Fed — would, if fully implemented, “likely lead to a substantial decrease” in US economic output and “a large increase in inflation,” said Antonio Fatás, an economics professor at INSEAD, a business school headquartered in France.

Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown, echoed some of these views. The stronger dollar reflects expectations that Trump will cut taxes, hike tariffs and clamp down on immigration, which are all inflationary and likely to mean more elevated interest rates in the years to come, she wrote in a note Wednesday.

“Investors are bracing for tariffs… which will push up the price of imported goods for American shoppers,” she added. Trump’s