Inflation was a major campaign theme in 2024, with anger over the COVID-19 pandemic price shock still fresh even as price pressures eased while the Federal Reserve raised interest rates.
But Trump's promise to lower prices was never realistic. Historically, U.S. prices on a broad basis only fall during dire economic times.
Lowering inflation is possible, but any improvement under Trump has been modest. The most closely watched price indexes show progress stalling, with inflation still above the Fed's 2% target, and policymakers concerned about the risks of it moving higher.
Import tariffs added to the price hikes to some degree; oil's surge to around $100 a barrel, about 50% more than where it traded before the war in the Middle East began in late February, added to the pressure; and now the demands from the AI buildout are doing the same.
Economists expect relative price shifts. In any given period, certain goods will increase relative to others.
But when the increases are big and broad enough, and different items keep rotating through the price-increase cycle, the result is more generalized inflation.
Some Fed officials see that scenario as an imminent risk.
Setting aside debate about whether a "K"-shaped income distribution, in which the wealthy and highest earners prosper while lower- and middle-income households fare less well, is fair or sustainable, consumer spending has held up throughout the various Trump-era shocks.
But it's unclear how long that trend can continue given that the broadest measure of household spending power — disposable personal income adjusted for inflation — has stalled out and even declined recently.
Disposable personal income is what's left over after taxes and covers wages as well as things like payments from the Social Security pension program — in effect the money left in a person's pocket to pay for housing, food and other goods and services.
Trump has veered from promising to make life more affordable to dismissing that objective as unimportant, calling recently enacted congressional legislation aimed at improving home affordability "a big yawn" and refusing to sign it.
Housing is a difficult issue. Presidents have held out homeownership as a touchstone of individual wealth and success for Americans, but lawmakers have curbed credit standards when markets got frothy and caused a global financial crisis.
After years of ultra-low interest rates, the pandemic added further fuel to the U.S. housing market — driving up home prices — and then Fed rate hikes meant to curb inflation made affordability worse by pushing mortgage rates to new highs.
Mortgage rates remain elevated, as do home insurance premiums that are linked to higher home values and other relevant costs.
The federal government can do only so much about housing supply. Extending tax credits or similar policies can help, but the sector remains under the control of local governments and their patchwork of land-use and zoning rules.
The bottom line, however, is that homeownership continues to command an outsized share of household income.
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