A Nobel Prize-winning economist breaks down exactly how Trump’s proposed policies could make inflation worse

• Joseph Stiglitz and other Nobel Prize-winning economists are worried about another Trump administration.
• They explained why in a recent letter, and Stiglitz further explained in a Business Insider interview.
• Inflation is one concern, which has cooled from its peak in 2022.

Nobel Prize-winning economist Joseph Stiglitz told Business Insider the US economy is "remarkably strong."

However, Stiglitz and others foresee a potential resurgence of inflation and other woes depending on who wins the next presidential election.

"I think general consensus, not just my view, but almost anybody modeling what is going on would say the Trump administration would be more inflationary," Stiglitz told BI. "How much more depends on how radical they are. And that depends on where Congress is. If they have a Democratic Congress, they won't have the ability to do what they would do with a Republican Congress."

Stiglitz recently spearheaded a letter signed by over a dozen Nobel Prize-winning economists. The letter, which was first obtained by Axios, stated the economists were "deeply concerned about the risks of a second Trump administration for the U.S. economy."

The economists predicted dire results from a Trump victory this fall. "The outcome of this election will have economic repercussions for years, and possibly decades, to come," the letter stated. "We believe that a second Trump term would have a negative impact on the U.S.'s economic standing in the world and a destabilizing effect on the U.S.'s domestic economy."

President Joe Biden and Trump had their first presidential debate of 2024 on Thursday. There are still a little over four months until the election, and FiveThirtyEight reports as of June 25 its forecast finds it's a "pure toss-up" who will win.

Business Insider talked to Stiglitz about the economy if Trump is once again president. Stiglitz said the widely shared view is this could result in higher inflation, worse inequality, and a potential broader economic slowdown. Massive progress has already been made in cooling off inflation.

Stiglitz pointed out how remarkably the inflation rate had cooled down without leading to high unemployment. The US unemployment rate has been at or under 4% since the end of 2021, a historically long stretch of low joblessness.

Stiglitz noted Trump's promise of large increases in tariffs as one of the things that could make inflation worse.

"Those tariffs overwhelmingly get passed on to consumers and increasing their prices and get fed down the supply chain — again, increasing prices to consumers," Stiglitz said.

Another could be the large decrease in taxes Trump proposed "that are not paid for and increasing the budgetary deficit from the level that it is today," Stiglitz said.

"And given where we are, I think the broad assessment is that that would be inflationary," he said. "And the broad assessment of the consequences of that is that the Fed would be forced to raise interest rates, and all that combined would still serve to increase inflation even as unemployment increased and GDP slowed."

A third factor that could juice inflation would be the "drastic reductions in immigration" that Trump has proposed, Stiglitz said.

There are different sectors of the US economy that rely on immigration, and Stiglitz said that the tight labor market could become even tighter with this drop in immigration.

Stiglitz also pointed to the possibility of a partial or full repeal of the Inflation Reduction Act, which included a Medicare prescription drug provision, among other things. "Without that, which Republicans had talked about repealing, drug prices will go up."

Outside of the risks to inflation, Stiglitz said a Trump presidency could also mean a slowing GDP. Another problem that could get worse is the inequality crisis.

Stiglitz pointed to Trump's tax policy as one that could boost inequality.

"The tax cut is a tax cut for the corporations and the billionaires," Stiglitz said. "If you look at the share of the tax cuts that go to the bottom, very small. In fact, in some of my analysis I suggested that it's even possible that some parts of the bottom would see a tax increase."

CNN and others noted statements from the Trump campaign disagreeing with the letter that the 16 economists signed.

"The American people don't need worthless out of touch Nobel prize winners to tell them which president put more money in their pockets," Karoline Leavitt, the Trump campaign's national press secretary, told CNN in a statement. "Americans know we cannot afford four more years of Bidenomics, and when President Trump is back in the White House, he will reimplement his pro-growth, pro-energy, pro-jobs agenda to bring down the cost of living and uplift all Americans."