Donald Trump returned to office promising to address voters’ frustration over higher living costs, yet the political problem he inherited has not faded. Instead, it has become attached to him.
The core problem is that affordability cannot be repaired quickly. Prices rose sharply after the pandemic, and even where wages have improved in real terms, many households still feel behind. The shock of suddenly higher everyday costs has lingered in public consciousness. It has also arrived after a much longer period in which asset prices rose far more convincingly than living standards for large parts of the population. That leaves a gap between what aggregate data may suggest and what many voters believe they are experiencing in practice.
If affordability is now both an economic reality for some households and a wider political mood for many more, it becomes a force that can shape policy regardless of whether traditional macro indicators look healthy. A strong stock market is not enough to neutralise it. Nor is decent nominal growth. In fact, those conditions may deepen the problem if the benefits continue to accrue mainly to asset owners and companies with pricing power.
That is why the inflation debate has become more complicated. Inflation has historically acted as a rough corrective in societies struggling with inequality, spreading pain widely enough to create pressure for political adjustment. The argument now is that this mechanism no longer works in the same way. In the modern US economy, inflation has coincided with stronger corporate earnings, abundant liquidity and resilient asset prices. Rather than levelling outcomes, it may have widened the divide between those with financial assets and those reliant on wages. If that is right, efforts to run the economy hot in order to support growth and ease the debt burden may raise political instability rather than relieve it.
The administration therefore faces a narrow path. It cannot ignore affordability, but direct attempts to solve it may prove counterproductive. Measures that boost demand too early risk reigniting price pressures. Visible interventions in selected industries may unsettle markets or distort incentives. Yet doing too little leaves room for the political narrative to harden further. That pushes policy towards headline-grabbing actions designed to reassure voters, influence sentiment and buy time.
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