What president Trump needs to do to bring inflation under control

Inflation is climbing, and housing costs are making it worse. President Donald Trump’s economic plans need to tackle this issue head-on.

Housing costs now make up a third of the Consumer Price Index (CPI), which measures inflation. The November CPI report showed mixed results for housing.

On one hand, annual growth in housing prices slowed to its lowest since February 2022. On the other hand, housing inflation still rose 4.7% in November, contributing 40% of the month’s overall inflation increase.

This creates a major hurdle for Trump. The Federal Reserve wants inflation at 2%, but housing costs are standing in the way. Lisa Sturtevant, Bright MLS’s chief economist, explained that rents are slowing but not fast enough. She said, “It just feels like it’s taking a long time.”

Housing supply and demand imbalance fuels inflation

The housing market has struggled since COVID-19 disrupted supply chains and construction. Housing supply in November was 17% below its level from five years ago, according to Realtor.com. Demand, however, hasn’t dropped, leaving prices stubbornly high.

Rents are a big part of the problem. Zillow reported the average rent in October was $2,009, up 3.3% from last year. Over the past four years, rents nationally have jumped by 30%. Mortgage rates are also an issue. 

While the Federal Reserve cut its key rate by 0.75% since September, 30-year mortgage rates have climbed, making homes even less affordable. For Trump, this is a tough situation. His plans, including tax cuts and tariffs, might actually fuel inflation.

Deregulation might help housing but carries risks

Trump has pushed for deregulation as a cornerstone of his economic strategy. This could help by opening more federal land for housing construction and easing barriers for builders. But monetary policy, which controls interest rates, is largely outside his control.

Trump has been vocal about wanting lower rates, but the Federal Reserve operates independently. Wall Street seems cautiously optimistic about the housing market. Bank of America’s Stephen Juneau said rents are moving toward levels consistent with 2% inflation.

But some do warn that shelter costs remain the biggest contributor to inflation. He said, “The rate of increase has slowed, but that’s no comfort.”

Trump also faces a Catch-22: The Federal Reserve won’t lower rates until housing costs drop, but housing costs can’t drop without lower rates. Sturtevant pointed out that: “We’re not going to drop rates until shelter costs come down. But shelter can’t come down until rates are lower.”

Inflation pressures spill into other sectors

Beyond housing, inflation pressures remain strong in services. The Atlanta Fed’s wage growth tracker showed pay increases at a three-year low, which might help, but inflation in services remains above 4%.

Specialized inflation metrics, like the Cleveland Fed’s trimmed mean and median inflation measures, indicate that progress is slow. Both metrics are still above 3%. This persistent inflation complicates Trump’s plans for tax cuts and tariffs, which could push prices higher.

One-year bond market inflation expectations have doubled since the election, reflecting the uncertainty about Trump’s policies. The inflation story doesn’t end with housing and services. It’s also hitting the stock market.

Tech stocks, especially the Nasdaq 100 and the so-called Magnificent Seven, surged after the November CPI report, reaching record highs. But analysts are divided on whether this rally is sustainable.