President Donald Trump Claims, “We Don’t Have Inflation, and Tariffs Don’t Cause Inflation,” but a New Report Strongly Disagrees
Statistically, the stock market has delivered outsize annual returns under President Donald Trump. During his first non-consecutive term (Jan. 20, 2017-Jan. 20, 2021), the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) soared 57%, 70%, and 142%, respectively. All three indexes have delivered an encore performance since the start of his second term.
But two things can be true at once. While the stock market has enjoyed higher average annual returns under Trump than under most other presidents over the last 130 years, Donald Trump’s inflation-driving policies (i.e., Trumpflation) may also be the greatest threat to a historically pricey, artificial intelligence (AI)-driven bull market.
Missed AI’s “Act 1”? Act 2 Could Be 14x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
President Trump’s inflation-driving policies are a real threat to the high-flying stock market. Image source: Official White House Photo by Patrick B. Ruddy.
At a campaign rally in Montana ahead of the midterm elections, Trump downplayed the effects of inflation on the U.S. economy and consumers. Said the president:
We don’t have inflation, and tariffs don’t cause inflation. You know what they cause? Wealth.
While there’s no question that the economy has continued to expand under President Trump, a new report strongly disagrees with his assessment on tariffs and inflation.
Tariffs are decisively raising consumer prices
In an ideal world, tariffs would encourage domestic production, protect American jobs, and make U.S. products more price-competitive with imported goods. Unfortunately, three New York Federal Reserve economists writing for Liberty Street Economics found no evidence of a parallel between tariffs and benefits for consumers.
In “How Fast Do Tariffs Pass Through into Consumer Prices,” the NY Fed economists examined what impact Trump’s 2025 tariffs had on consumer prices. According to their report, every percentage point increase in average tariffs translated into a quarter-percentage-point increase in consumer prices after one year. By February 2026, Trump’s tariffs had added 2.9 percentage points to goods price inflation, which otherwise would have experienced deflation (falling prices) without tariffs.
Economists note two specific impacts on consumer prices. The first was the direct effect of assigning duties to imported products, accounting for about two-thirds of the effect of higher prices.
The second, indirect effect on prices took the form of higher production costs, which were then passed on to consumers. Additionally, if imported products were more expensive than those manufactured in the U.S., domestic companies would capture some of this cost difference by increasing their prices.
Image source: Getty Images.
We definitely have inflation, and it’s a serious concern for the stock market
In addition to tariffs, the Trump-led Iran war is contributing to well-above-average inflation. The ongoing closure of the Strait of Hormuz represents the largest energy supply disruption in modern-day history. Fuel prices have soared in the wake of this closure.
But the Iran war is much more than just a story about energy supply disruption. Businesses have altered their modes of transportation, changed shipping routes, and shifted to new suppliers, all of which threaten to increase costs. Trumpflation has evolved into a broad-based economic issue, as evidenced by sticky core inflation.
Not only are consumers and businesses coming to grips with persistently elevated inflation, but it also runs the risk of upending Wall Street’s bull market under Trump. If the Federal Reserve gets more aggressive with its rate-hiking cycle and higher borrowing costs slow the AI infrastructure build-out, even marginally, elevated inflation could be the catalyst that sends stocks tumbling.
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