Wall Street is growing increasingly confident that Donald Trump will return to the White House.
Billions are pouring into sectors like banking, cryptocurrencies, and energy, with traders expecting deregulation and protectionist policies.
His own company, Trump Media & Technology, has seen its shares nearly triple over the last month, despite producing little revenue and losing tens of millions of dollars a quarter.
Treasury yields have been rising, partially because investors are betting on higher inflation that would create a greater supply of longer-dated government bonds.
The dollar has been moving higher against other currencies, as traders bet Trump’s agenda would increase inflation and lower bond prices.
In other words: the “Trump trade,” popularized during his first term, has returned.
The reasoning behind these moves is clear: Trump’s promises of cutting red tape and slashing taxes would, at least in the short term, boost corporate profits, especially in sectors like tech, crypto and financial services. Bank stocks have jumped 8.5 percent in just two weeks, and Bitcoin surged 13 percent over the same period.
While Wall Street may be placing their bets on the former president, many economists warn that a second Trump administration could unleash inflationary pressures that further destabilize an already fragile U.S. economy that is in the process of recovering from the price shocks of the pandemic years.
Trump’s economic platform centers on aggressive tariffs, which he claims will protect American jobs and industry. The former president has pledged to impose a 60 percent tariff on Chinese goods and a “universal” tariff on all other imports.
While this protectionist stance appeals to voters concerned about job losses, it carries significant inflationary risks.
“Markets fear a Trump presidency will lead to higher inflation for a few reasons,” Joseph Foundy, a professor of economics at NYU’s Stern School of Business, told Newsweek.
“Most importantly, his stated plan is to increase tariffs across the board and if even only some of that were enacted it is likely to significantly increase inflation.
Photo by Michael M. Santiago/Getty Images
By increasing import costs, Foudy said, tariffs push prices higher for products ranging from consumer electronics to food.
In a fantasy world, the importers might eat those price increases as the cost of doing business in America. But in reality, those price increases are passed on to consumers.
That alone could lead to a replay of the inflationary surge that rattled Americans during the pandemic​.
Mortgage Rate Volatility
As markets adjust to the possibility of a Trump victory, mortgage rates have also surged, even though the Federal Reserve has started cutting interest rates — which should lead to lower borrowing costs.
The average rate on a 30-year mortgage is back to its highest level in two months, rising to 6.44 percent from 6.32 percent last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 7.63 percent.
The last time the average rate was higher was on August 22, when it was 6.46 percent.
There are a number of factors that influence mortgage rates, including how the bond market reacts to the Federal Reserve’s interest rate policy decisions. And higher rates also reflect a stronger economy, which helps support the housing market. But they also price out homebuyers, keep homeowners from selling, and generally lead to more paralysis in the U.S. housing market that desperately needs loosening.
Tariffs, Taxes & Immigration
Many economists have warned that Trump’s tariff and tax cut policies are, by definition, inflationary.
If Trump wins and enacts a broad agenda of cutting taxes, instituting tariffs and not also slashing government spending, the Federal Reserve may need to keep interest rates elevated for longer, which could slow economic growth and increase borrowing costs for both homes and businesses.
A recent report from the Peterson Institute for International Economics predicts that if Trump’s proposed tariffs are fully enacted, inflation could go back to 9.3 percent by 2026, which is roughly where it peaked in June 2022.
Mark Zandi, chief economist at Moody’s Analytics, estimates that a Harris victory, by contrast, would leave the inflation outlook virtually unchanged.
Another pillar of Trump’s policy platform—severe and immediate immigration restrictions—could exacerbate inflation further. Over the last few years, the U.S. labor market has been propped up by increased immigration, particularly in sectors like agriculture, construction and healthcare.
Deporting millions of undocumented workers and restricting legal immigration, as Trump has proposed, would trigger labor shortages and drive up wages, Foundy said, adding further to inflation.
This labor squeeze could put employers in a difficult position, pushing up wages as businesses scramble to find enough workers to fill essential roles. According to the Peterson Institute, Trump’s immigration policies alone could push inflation up by 3.5 percentage points by 2026​.
But one of the biggest concerns for economists is Trump’s vow to take more control of the Federal Reserve. Trump has frequently criticized the Fed and its chairman, Jerome Powell—whom he appointed in 2017—for raising rates too aggressively.
He recently suggested he would seek more influence over the central bank if re-elected. Historically, the Fed’s independence has been key to managing inflation, as its mandate allows it to raise or lower benchmark rates without political interference.
“If the Federal Reserve is seen as being influenced by the president’s preferences, it could lose its credibility and independence. This perception would make it harder for the Fed to take necessary actions, like raising interest rates, to control inflation,” said Todd Belt, director of the Political Management program at George Washington University.
Trump, however, has vowed that if voters return him to the White House, “inflation will vanish completely.”
Voter Sentiment vs. Economic Reality
Over the last several years, voters have consistently made clear that they will not tolerate a return of the inflation that accelerated under the Biden administration. Still, despite the risks of Trump’s policies doing exactly that, his economic message is resonating with voters who regularly give him the edge over Harris on matters of the economy.
Trump’s campaign focused on economic challenges under Biden, highlighting high living costs and inflation’s impact on ordinary Americans. He often points to rising grocery prices as evidence of the current administration’s failures, emphasizing that food prices have risen nearly 25 percent from pre-pandemic levels.
While inflation has fallen dramatically from its 2022 peak, nearly back to the Fed’s target of 2 percent, prices for essentials like groceries and gas remain high.
Belt, of George Washington University, said that America’s polarized politics often prevents voters from fully engaging with the economic risks of their preferred candidate.
“Trump’s economic plan hasn’t been fully discussed, and it’s inflationary, contributing to the debt and deficit, as many economic analyses have pointed out,” Belt said. “But in an age of hyper-partisanship, those objective analyses don’t get through” .
With the economy still the top concern for voters ahead of Election Day, the Bureau of Labor Statistics reported that the Consumer Price Index (CPI), considered the gold standard of inflation readings, rose by just 0.2 percent in September, maintaining the same monthly increase seen in August, bringing annual inflation down to 2.5 percent — its lowest level since early 2021.
Foundy, the NYU professor, said that while the rate of inflation has slowed significantly, it doesn’t mean prices are actually dropping, which is sometimes difficult for voters to understand.
“People are still facing high prices that are well above what they were when Trump was president,” he said.
“Low inflation means prices aren’t rising as quickly anymore, but it doesn’t mean they’re coming down,”
