Trump's "Systematic" Undermining of the Economy - with Justin Wolfers

The latest data show headline inflation jumping to 3.8% while core inflation sits at 2.8%, a level that exceeds the Federal Reserve’s comfortable 2% target. At the same time, wages grew only 3.6% over the past year, meaning real purchasing power has slipped. Economists also note that official inflation measures may slightly overstate price growth because they struggle to capture quality improvements and new product introductions. These dynamics explain why many households feel the pinch even as the overall economy remains resilient.

From a policy perspective, the Fed deliberately tolerates a modest inflation rate. Keeping inflation above zero preserves a positive real interest rate cushion, allowing the central bank to cut nominal rates in a downturn without driving real borrowing costs into negative territory. This buffer is crucial after the zero‑lower bound constrained policy during the 2008 recession and the COVID‑19 crisis. By targeting an “ignorable” inflation level, the Fed aims to let consumers and businesses make decisions without constant price‑level distortions.

President Trump’s actions have added a distinct layer of pressure on the economy. Unilateral tariffs, the decision to bomb Iran, and the erosion of health‑care subsidies have all contributed to higher oil prices, which ripple through gasoline, jet fuel, plastics, and even everyday goods like cereal. Oil futures now project elevated gasoline costs through 2026‑2028, signaling that the price shock will linger well beyond the immediate conflict. These policy‑driven shocks underscore the broader point that institutional stability—sound trade rules, independent central banking, and predictable legal frameworks—remains the foundation of sustained prosperity.