Amid the flurry of actions President Donald Trump took his first day in office Monday was a memorandum calling on federal agencies to find ways to solve what Americans have called their biggest financial burden: inflation.
“I will direct all members of my cabinet to marshal the vast powers at their disposal to defeat what was record inflation and rapidly bring down costs and prices,” Trump said in his inaugural address.
The strong words signified Trump’s effort to swiftly address a historic post-pandemic spike in consumer prices – a chief reason Americans said they disapproved of former President Joe Biden and voted for Trump over former Vice President Kamala Harris.
Trump and administration officials provided few details on their coming inflation battle except to say they’ll open more federal land to energy drilling to reduce oil and gasoline prices.
Trump’s memo asks federal agencies to conduct a 30-day review of how they can help lower the costs of housing, health care, food, energy and home appliances, along with finding ways to bring more people into the workforce, according to The Associated Press.
Can Trump lower prices for U.S. consumers? And how would he do it?
Besides paving the way for more oil production, the president will likely seek to scrap or loosen regulations in various industries and slash government spending, economists and public policy experts say.
“It’s going to be energy, deregulation, and driving down waste in government spending to free up scarce resources,” said Joe LaVorgna, the chief economist of the National Economic Council during Trump’s first term who now holds that title at SMBC Nikko Securities.
Deregulation can lower the cost of complying with environmental and other government rules and speed the construction of homes, factories and other supplies. Both outcomes may reduce prices for consumers.
Mark Zandi, chief economist of Moody’s Analytics, said cutting red tape could lower prices but can take years to enact “and even then there is no certainty it will reduce prices.” Unlike the sweeping deregulation of industries such as airlines and utilities decades ago, “the regulation changes currently being considered are more on the margin,” Zandi said.
Inflation, including at the gas pump, already has eased significantly since peaking in 2022. As pandemic-related supply chain snarls have unwound and a burst of consumer demand has moderated, annual consumer price increases have fallen from a 40-year high of 9.1% in mid-2022 to 2.9% in December, modestly above the Federal Reserve’s 2% goal, according to the consumer price index.
Trump says he’ll go further by taking steps to lower prices. Yet in an interview with Time Magazine last month, he acknowledged: ‘It’s hard to bring things down once they’re up. You know, it’s very hard.”
Meanwhile, forecasters say Trump’s key economic policies will likely stoke price increases, more than offsetting his inflation-fighting strategies.
Hefty tariffs on imports, for example, likely would be passed along to consumers through higher prices, Moody’s said. Extending and expanding the 2017 tax cuts would stimulate consumer and business spending, pushing up prices. And deporting millions of immigrants who lack permanent legal status would trigger labor shortages, especially in industries such as agriculture and construction, driving up wages and prices.
“Everything Trump is doing is likely to cause higher inflation than there was in the last year of the Biden administration,” said Jeremy Mayer, a professor at George Mason University’s Schar School of Policy and Government.
Trump’s threat this week to hit imports from Canada and Mexico with 25% tariffs on Feb. 1 would drive inflation from 2.9% in December to 3.7% by the end of 2025, Deutsche Bank estimated. Trump also said he's weighing another 10% tariff on China on that date.
Trump has disputed that his tariffs and immigration crackdown would drive inflation higher. LaVorgna noted that by discouraging imports, tariffs would strengthen the dollar, which would bring down import prices for households and at least partly offset the tariff effects. As a result, he said, many companies simply would absorb the cost of the levies.
Meanwhile, in his executive order, Trump cited "unprecedented regulatory oppression from the Biden Administration" that's costing the average household tens of thousands of dollars.
Here’s a sampling of how Trump could tackle inflation, according to economists and public policy experts.
Among other things, Trump’s order on energy would open the Arctic National Wildlife Refuge to oil drilling, according to The Associated Press. He has vowed to halve gas prices by growing American oil supplies.
Yet oil experts say American crude production already is at an all-time high and the U.S. is the world’s leading producer. And though prices have climbed in recent weeks, the Department of Energy predicts output will increase this year and oil prices will average $70 a barrel this year and $62 in 2026.
That’s at the lower end of what oil producers say they need to make a healthy profit, USA TODAY has reported. Also, oil prices are determined on a global market. If increased production in Alaska or off the coast of the U.S. reduced prices, OPEC or other U.S. producers likely would respond by curtailing drilling to nudge prices higher again, said Robert Kauffman, a Boston University professor who studies global oil markets.
The DOE forecasts average unleaded gas prices of $3.20 a gallon this year, 10 cents below the average in 2024, and $3 in 2026.
LaVorgna, however, noted that oil prices averaged $53 a barrel in Trump’s first term – while unleaded gas averaged about $2.60 a gallon – underscoring there’s room for additional production to lower pump prices further.
Housing has been the biggest inflation driver in the past few years, accounting for 37% of consumer price increases in December. Since early 2021, median home prices have risen 18.4% while rent is up 24%, government figures show.
The biggest culprit: Limited housing supplies. While much of that can be traced to local zoning laws, federal environmental rules also delay construction and increase costs, according to Mayer and the National Association of Home Builders.
The Waters of the U.S. Act requires builders to get federal permits to fill even small bodies of water. Obtaining such permits can take 788 days and average $270,000 in cost, the National Association of Home Builders said, citing a study. More broadly, Congress could reform the Clean Water Act and the Endangered Species Act to speed permitting, the housing group said.
Besides deregulating, Congress could expand a tax credit that helps subsidize the construction of affordable rental housing, the association said, noting that demand far outstrips supply.
Zandi, however, said that while such measures could help contain prices, tariffs would raise the cost of imported building materials. And deporting lots of immigrants would delay home construction, he said, noting that immigrants comprise 30% of jobs in building trades.
The government could reduce costs by easing rules intended to safeguard the health and safety of workers in agriculture, manufacturing and other industries, said Harry Holzer, a professor of public policy at Georgetown University.
The Trump administration, he said, also could increase funding for worker training in industries such as housing and manufacturing and lift constraints on who is eligible for Pell Grants, which help low-income students get a college education.
Administration officials also could impose work requirements on Medicaid recipients and beef up work obligations for people who receive food stamps, Holzer said, increasing the labor supply and slowing wage growth.
Although COVID-19-related supply chain bottlenecks have eased as consumer demand has ebbed and factory and warehouse employees have returned to work, there are still snags that raise costs.
The nation needs 60,000 additional truck drivers, according to the American Trucking Association. The shortage slows deliveries and increases freight costs.
Among other measures, the government could ease rules to allow 18- to 20-year-olds to cross state lines for deliveries as long as they take a rigorous training program and use trucks with the latest safety technologies, the trucking association said.
Home appliances such as dishwashers and refrigerators must meet energy efficiency standards to reduce energy demand and lower greenhouse gas emissions. The Trump administration could take steps to lower such standards, Mayer said.
Trump’s executive order on inflation says it will take aim at “rent-seeking practices that increase healthcare costs.” Mayer pointed to a complex web of health care providers, insurance companies and other middlemen that raises expenses.
A study by Physicians for a National Health Program concludes such companies “extract outsize profits relative to the capital they deploy and risks they take.”
At the same time, Trump this week revoked a Biden administration order to explore ways to lower prescription costs for Medicare and Medicaid beneficiaries, according to The Hill.
He included it among rescissions of orders he decried as supporting “unpopular, inflationary, illegal, and radical practices.”
Trump has created a new department to cut about $1 trillion from the federal budget. A smaller budget would help shrink the deficit and reduce government demand for goods and services, theoretically relieving pressure on inflation.
But at the same time, extending Trump's tax cuts from his first term would increase deficits by nearly $5 trillion over 10 years, according to the Committee for a Responsible Federal Budget.
"I suspect at best Trump's policies have no net impact on deficits," Zandi said. "More likely, they will add to deficits. If so, it will add to inflation."
(This story has been updated to add new information.)
This article originally appeared on USA TODAY: How can Trump fix inflation? Experts say he'll focus on these areas
