Trump Is Making Promises That Many Economists Call Unrealistic

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By The New York Times

Published 3 months ago on

September 10, 2024

Former President Donald Trump, the Republican presidential nominee, during a campaign event in Mosinee, Wis., Sept. 7, 2024. Economists and analysts are dubious of Trump’s promises to slash gas prices or prod interest rates lower. (Jamie Kelter Davis/The New York Times)

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WASHINGTON — As he seeks to return to the White House, former President Donald Trump has pledged to cut Americans’ energy costs in half in the span of a year, part of a plan to reduce inflation and drive mortgage rates back toward record lows.

But economists and analysts — and Trump’s own record from his first term — suggest that it is unlikely that Trump can deliver on those promises.

Trump’s vow to dramatically reduce Americans’ cost of living hinges in part on his plans to quickly expand oil and gas drilling and reduce government impediments to power plant construction, which he says would slash energy bills by “more than half.” As prices fall, he regularly states, interest rates will come down, along with mortgage rates.

But Trump has not cited modeling or other economic analysis to support his assertions. Economic research and historical experience suggest that presidents have only a limited effect on locally regulated electric utilities or on the cost of oil, which is a globally traded commodity.

“He doesn’t really have the tools to lower oil prices enough to cut gasoline prices in half,” said Steven Kamin, a senior fellow at the conservative American Enterprise Institute and former Federal Reserve economist.

In all, experts and past evidence suggest that Trump is overpromising on key economic issues related to prices and interest rates. And that fits with a pattern he established during his earlier campaigns — one in which he emphasizes big, catchy outcomes with little attention to costs or how he might make good on his pledges.

Trump Is Making Big Economic Promises

Trump has been making a frequent pitch from the campaign trail. He will “issue a national emergency declaration to achieve massive increase in domestic energy supply,” he told an audience at the Economic Club of New York last week. Then, in his telling, gas prices will fall, dragging other prices down with them.

“We’re going down and getting gasoline below $2 a gallon, bring down the price of everything from electricity rates to groceries, airfares and housing costs,” Trump said. As inflation cools, he then implies, the Fed will lower interest rates. He has begun to predict that mortgage rates could fall to under 3%.

But that series of events seems to hinge in large part on energy prices falling sharply, which analysts say could be difficult to achieve.

While a president can help to reduce electricity prices somewhat, they are the result of complex factors, said Scott Segal, a partner at the lobbying firm Bracewell with a focus on energy. Those include broader inflation, demand growth, regulations and shocks like extreme weather.

“Some of these factors can be addressed at the margin,” he said in an email, but “controlling the weather is a tall order.”

When it comes to Trump’s most concrete promise — to bring gas prices below $2 per gallon — several energy analysts said that there was no obvious way for him to fulfill it.

Gas Prices Are Hard to Change

“The president doesn’t control U.S. oil production: He can give the green light, cut through bureaucratic tape and make it very easy to drill,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “The president cannot require oil companies to shoot themselves in the foot.”

That, he said, is essentially what would happen if oil prices fell enough to bring gas costs at the pump to the levels Trump is promising for any length of time. It would be tough for companies to make a profit.

While Trump has said he would declare a “national emergency” so that he could swiftly approve permits for pipelines and drilling, De Haan noted that it would be an unusual thing to do in the current situation. Production has continued to increase under the Biden administration, and the United States is pumping more crude oil than any country in history.

“I’m not sure what a national emergency means,” said Helima Croft, who leads commodity strategy at RBC Capital Markets, explaining that she was uncertain how such a move would inspire companies to produce at much lower prices. “They’re not going to drill unless it makes sense economically.”

And simply churning out more fuel domestically would not necessarily make prices fall. Both demand and global output matter — factors that can be influenced by the health of the economy or even weather events like hurricanes that can knock energy infrastructure offline.

For instance, from the time Trump took office in 2017 until he left in 2021, U.S. oil production steadily increased. But U.S. gasoline prices were essentially unchanged at the end of his term from at the beginning, at just under $2.40 a gallon nationally. The same was true of electricity costs, even though natural gas production increased while Trump was president.

Interest Rates Are Not the President’s Purview

If Trump cannot cut gas prices as much as he’s promising, it is not clear that he has another path to dramatically lowering inflation.

He has suggested that slashing regulations could reduce the incentive for companies to raise prices, and some analysts agree that cutting red tape could lower costs around the edges.

But many economists have suggested that the higher tariffs he’s proposing — including across-the-board levies of perhaps 10% — would make imports costlier and push up prices. And that could imperil his promise of much lower mortgage rates.

Trump has no direct control over borrowing costs. Short-term interest rates are set by the Fed, America’s central bank, which is independent of the White House, and those trickle out to drive the rates on housing and car loans.

While Trump can try to appoint officials to the Fed who are friendly to his demands for low interest rates, he most likely could not do so right away. Jerome Powell, the Fed chair, has a term that does not expire until 2026. Trump has suggested that so far, he does not plan to try to fire Powell early, and even if he wanted to, it is not clear that he could.

That means that lower Fed rates would have to come in response to what is actually happening in the economy — including whether inflation is under control.

Mortgage Rates Are Not Poised to Fall to 3%

Central bankers have been preparing to cut interest rates as inflation has cooled, a trend that has continued for two years. But the cuts they forecast are not nearly as drastic as what Trump is promising.

In fact, many economists think that given those forecasts, mortgage rates could settle in the neighborhood of 5.5%. Kamin said that in “the best of all possible worlds,” Americans could see mortgage rates come down to 4%, but added that he believed 5% was more likely.

If Trump’s policies cause inflation to remain stubborn or even pick back up, that could prompt the Fed to cut rates less than officials are currently expecting, some economists have warned.

“We believe that the Fed would engage in a less aggressive cutting cycle under a second Trump administration due to the inflationary nature of additional tariffs,” economists at Nomura wrote in a recent analysis.

But Trump Insists His Plans Will Work

The Trump campaign contests the idea that Trump would struggle to make good on his economic promises.

“To those questioning whether President Trump can deliver on his ambitious economic promises — just take a look at his first-term record,” said Karoline Leavitt, a Trump spokesperson. During his first term, “President Trump’s policies led to record-low mortgage rates,” she said, along with $1.50-per-gallon gas.

Gas prices did dip in early 2020 (to $1.50 in some places and $1.77 nationally). But those prices, along with rock-bottom mortgage costs, owed to the steep and sudden pandemic recession, which caused consumers to stay home and the Fed to slash borrowing costs nearly to zero to prevent an economic depression.

When asked for an economic analysis to back up the claim that energy prices will fall by half and gas prices will drop below $2, Leavitt said, “Time warp alert! Just like 2016, Wall Street forecasts and economists said that Trump policies would result in lower growth and higher inflation, the media took these forecasts at face value, and the record was never corrected.”

Both growth and inflation were roughly in line with previous trends under Trump’s watch, before the onset of the 2020 pandemic.

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This article originally appeared in The New York Times.

By Jeanna Smialek and Jim Tankersley/Jamie Kelter Davis
c. 2024 The New York Times Company