Write to Paul Kiernan at [email protected] and Anthony DeBarros at [email protected] Economists predict higher inflation over the next two years.

Economists are starting to model the impact of President-elect Donald Trump’s plans to raise taxes, cut taxes and limit immigration. Conclusion: Inflation and interest rates are likely to be higher than pre-election forecasts for at least the next two years.

The consumer price index is now expected to rise 2.7 percent in December 2025 from a year earlier, according to the average forecast of 73 economists responding to a quarterly survey by The Wall Street Journal. In October, the panel saw consumer prices rising 2.3 percent in 2025.

“Inflation and interest rate risks are upside with a Trump administration,” said Augustine Faucher, chief economist at PNC Financial Services Group.

For the average household, based on the latest consumer spending data, higher than expected inflation would equate to about $600 more in costs over the course of the year.

Trump will take office on Monday with a much stronger economy than in 2020. The United States is growing faster than other advanced economies, the International Monetary Fund noted Friday, and unemployment is low by historical standards.

However, inflation is higher than it was four years ago, and while it has eased considerably, public anger over rising prices is one of the main reasons Trump is back in the White House.

During the campaign, Trump repeatedly promised to lower prices by, among other things, increasing oil drilling.

In the latest Journal survey, economists also raised their inflation forecasts for 2026, with CPI rising to 2.6% at the end of the year from what they had expected in October, according to the survey, 10- Done on January 14. This would still be a lower inflation rate than the 2.9% recorded in December.

The extent to which Trump will follow through on his economic promises is unknown, as are the effects on prices, employment and growth. During the campaign, Trump imposed tariffs of 60% or more on China and 10% to 20% on other countries. In late November, he said he would impose tariffs of 25 percent on Mexico and Canada and 10 percent on China on the first day of his presidency.

The Journal asked economists what tariffs they assumed Trump would impose. On average, expected import tariffs would rise by 23 percentage points on responding China and 6 percentage points on the rest of the world, each for a 10 percentage point higher average tariff. They estimate that this will add 0.5 percentage points to the CPI inflation rate in the fourth quarter of this year.

Joe Brusuelas, chief economist at RSM US, said the tariffs are not particularly timely given the persistence of inflation after the price shock caused by the pandemic.

But several noted that potential exemptions to tariffs, or efforts by importers to eliminate the levies by reorganizing their supply chains or shipments, add considerable uncertainty to such estimates. Not every economist answered every question in the survey.

Trump’s win over Vice President Kamala Harris isn’t the only thing that has changed the economic outlook since the last poll. Inflation and economic growth were also stronger than expected during the recession. In October, economists expected CPI to rise 2.5 percent at the end of 2024, but it rose 2.9 percent. Fourth-quarter GDP, meanwhile, is now expected to grow 2.5 percent from a year ago, instead of the 1.7 percent expected in October. They see a 22 percent chance of a recession in the next 12 months, the lowest level since January 2022.

These changes in the outlook, combined with the potential impact of Trump’s economic policies, prompted Federal Reserve policymakers to also raise their 2025 inflation forecasts.

Faced with steady inflation, economists expect the Fed to keep interest rates higher than previously forecast until 2027. The midpoint of the Fed funds rate range, currently 4.375%, is now seen to end the year at 3.89%, higher than the average October estimate of 3.3%.

Economists now expect the 10-year Treasury bond yield to reach 4.4 percent at the end of 2025, up from October’s estimate of 3.7 percent but down from 4.6 percent on Friday afternoon. All else being equal, that would likely translate into similarly steeply higher mortgage rates.

Economists slightly revised their forecasts for gross domestic product, the broadest measure of an economy’s output of goods and services. They now see GDP growth of 2 percent in 2025, up from October’s estimate of 1.9 percent, according to the survey. They forecast 2% growth in 2026, down from 2.1% in the October forecast.

The impact of Trump’s policies on the growth outlook is mixed. Economists polled by the Journal expect Trump’s tariffs to shave 0.2 percentage points off 2025 GDP growth.

In general, tariffs weigh on economic output by raising the cost of key inputs and reducing disposable income, and by bringing retaliation by trading partners, which often reduce U.S. exports. Trump’s plans to limit immigration and speed up deportations will likely reduce the labor supply. The magnitudes of both, though, are highly uncertain.

On the other hand, some of Trump’s plans may help growth. His proposed new and expanded tax cuts, which economists in the Journal survey project will add $4 trillion to the federal deficit over the next decade, could erode aggregate demand and, along with promising to close, jobs and May increase incentives for investment.

Economists expect the unemployment rate to fall to 4.3 percent at the end of 2025, roughly in line with expectations three months ago, and forecast payrolls to increase by 121,000 a month in the fourth quarter, up from 139,000 in October. less than predicted.

Write to Paul Kiernan at [email protected] and Anthony DeBarros at [email protected]

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