President Donald Trump is discovering what Joe Biden learned the hard way: voters don’t easily forgive price increases. Despite inflation cooling from its peak, two-thirds of Americans disapprove of how Trump is handling inflation, according to an April Economist/YouGov poll.
The Republican Party’s victory lap over no tax on tips and no tax on overtime rings hollow, considering persistent public frustration with the cost of living. It doesn’t help that Trump’s tariff war and the war in Iran are further fueling rising prices.
And voter frustration isn’t just about recent price changes. It’s also about the lasting damage from the inflation surge of 2021–2022, which pushed the overall price level permanently higher.
There’s one cure, however, that Washington continues to miss. Inflation is increasingly driven by unsustainable budget policy, and politicians on both sides of the aisle keep pouring gasoline on the fiscal fire.
When debt grows persistently faster than the economy, it eventually forces difficult choices. Investors begin to question how the government will meet its obligations. There are only three answers: raise taxes, cut spending, or allow inflation to erode the real value of debt. When the first two options are repeatedly postponed, inflation becomes the likely path of least resistance.
This is the risk of so-called fiscal dominance. Even a formally independent Federal Reserve cannot ignore the consequences of excessive borrowing. If interest costs rise rapidly and financial markets come under stress, the Fed will face pressure to lower borrowing costs at the risk of fueling inflation.
In that world, debates about whether a Fed chair is politically independent miss the bigger picture. The real danger is that fiscal policy leaves the central bank with no good options.
Recent experience offers a clear warning. The inflation surge earlier this decade was not primarily caused by pandemic-related supply disruptions. Nor does the corporate greed theory hold any water. It was mostly driven by unprecedented deficit-financed stimulus spending combined with accommodative monetary policy.
In short, the government spent too much, and to enable this excessive government spending, the Fed printed too much money.
Bringing inflation back down required interest rate hikes, raising borrowing costs across the economy. That painful adjustment underscores a key lesson: restoring credibility after inflation takes hold is far more costly than maintaining discipline in the first place.
Yet Washington is not only failing to change course but doubling down.
Despite campaign promises to rein in spending with efforts like the Department of Government Efficiency (DOGE) and vows by President Trump to balance the budget, the Trump administration and Congress have continued to expand the federal debt.
From extending and expanding the Trump tax cuts without commensurate spending reductions to doing an end-run around the appropriations process to boost defense and immigration enforcement, Republicans have repeatedly sidestepped budget rules to pass deficit-financed, partisan measures.
Interest costs on the national debt now exceed federal spending on national defense. That could soon change, however, as President Donald Trump pushes to reverse the imbalance — not by lowering interest rates, but by increasing defense spending.
Republicans aren’t the only ones to blame. Democrats under Biden also abused the budget process and executive powers to enact green energy subsidies, forgive student loan debt, and accelerate the cost of food stamps.
Meanwhile, neither party is willing to confront the unchecked growth of entitlement programs. Social Security, Medicare, and Medicaid are expanding faster than the economy and faster than federal revenues. Demographic shifts, including an aging population and lower birth rates, mean fewer workers are supporting more beneficiaries.
The bigger problem is poor program design. Social Security benefits grow with wages, exceeding inflation, and federal health care programs are open-ended entitlements devoid of market incentives to control price pressures.
Absent meaningful reform, the conclusion is unavoidable: inflation will rise to reduce the fiscal burden of the debt.
Sound fiscal policy is the only answer. When Congress credibly stabilizes debt, it anchors inflation expectations and reduces the risk premium investors demand. Lower long-term interest rates ease borrowing costs across the economy and slow the growth of federal interest payments.
Congress should adopt a credible and enforceable fiscal target to stabilize debt relative to the economy. Its members should stop the misuse of emergency spending provisions to bypass budget constraints. And most importantly, they must reform the entitlement programs driving long-term spending growth.
That means refocusing Social Security on preventing poverty in old age while adjusting benefits and eligibility to reflect higher earners’ ability to save on their own and longer life expectancies. It means slowing Medicare’s growth through stronger budget constraints and cost discipline, best achieved by giving beneficiaries more control over how their subsidies are spent. And it means restructuring Medicaid to limit federal exposure and improve accountability, with states bearing a larger share of costs.
None of these steps are politically easy. An independent fiscal commission could help break the partisan deadlock and advance these reforms.
Trump’s declining approval ratings on inflation are a warning sign. Voters know something is wrong. Until policymakers confront the underlying source of the problem — unsustainable federal spending — inflation will remain a recurring threat, and the Federal Reserve’s independence will erode under the weight of the nation’s debt.
