Trump Risks Inflationary Déjà Vu with Stimulus Push Amid Robust Growth

Markets are bracing for a potential collision between fiscal expansion and monetary reality as President Trump advocates for aggressive stimulus measures despite a backdrop of robust economic growth.

Stimulus in a Hot Economy

Echoing the early days of the Biden administration, Trump is pushing for a fresh round of economic injections, including $2,000 direct checks to Americans and calls for lower interest rates. This comes despite US GDP expanding at an annualized rate of 4.3% in the summer—a sharp contrast to the pandemic-recovery era that justified previous mass payouts.

Economic orthodox suggests that stimulus during high-growth periods risks overheating the economy. Critics argue that replicating the “Biden-style” fiscal injections of 2021 could re-ignite the inflationary pressures that saw CPI hit 40-year highs in 2022.

The 'Trump Rules' Pressure the Fed

In a challenge to Federal Reserve independence, Trump has outlined what he terms “Trump Rules,” advocating for a Fed Chair who would cut rates when equity markets are rallying to sustain momentum. This contradicts the traditional central bank mandate of hiking rates to cool an overheating economy.

“I want a Fed Chair who cuts when the market is good, not one who wrecks it for no reason,” Trump stated, claiming a buoyant stock market could unrealistically boost economic growth by up to 20%.

Inflationary Headwinds

The combination of demand-side stimulus and potential rate cuts creates a classic inflationary setup: boosting disposable income while easing borrowing costs creates excess demand against fixed supply.

Federal Reserve Chair Jerome Powell recently noted that tariffs remain a contributing factor to inflation holding above the 2% target, with November CPI printing at 2.7%. While markets currently expect the Fed to hold rates steady until mid-2026 to support the labor market, a new wave of fiscal stimulus could force a hawkish pivot, driving Treasury yields higher and adding volatility to the Greenback.