Mr. Trump repeatedly insists there is no inflation for his rationale for berating the Fed for not lowering interest rates, and yet the dollar has fallen ~9% since the beginning of the year. And Gold is up ~40% since his inauguration. Gold is an inflation hedge, and you can be sure, the market is pricing in his preferred easier money path and desire to use financial repression to hold down Uncle Sam’s financing costs. Once upon a time, not so long ago (i.e., Mr. Trump’s first term) Mr. Trump was in favor of the gold standard. A gold standard monetary policy with the picture above would be raising rates, not lowering. The market is definitely sniffing some inflation (the 30 year bond has been hovering around 5%). Consumer expectations of next year’s inflation are rising, and food prices continue to punish lower income consumers. And then there is the beginning of tariff increases.

Here at BATG, I’ve warned that Mr. Trump risks being Biden II: his mandate was pretty much stop the border chaos, stop the culture war insanity of the left, and get prices down. Restructuring the global economy towards his vision was not part of that mandate. He has already completed the first two parts of his mandate with great success (although the left is fighting him on both). Yet I’m quite confident that the American public will bank his successes on the border, and if the price increases keep going, will steadily eat into his popularity and ultimately the election. Recent polls seem to agree with this assessment. First, most Americans are quite unhappy about food prices:

More than half of Americans (53%) see grocery prices as a major source of stress and another 33% see it as a minor source of stress, according to a new poll from the Associated Press-NORC Center for Public Affairs Research.

More people were concerned about grocery prices than any other financial concern brought up in the poll, but more than half of respondents also said they were at least somewhat stressed about their salaries, the cost of housing, the amount of money they have saved, their credit card debt and the cost of health care.

It’s of course true that inflation is down from the Biden highs, but it is also true that August’s report of 2.9% annualized inflation is both higher than the Fed’s internal 2% goal (which no American really wants even 2%) and is high enough that it continues to be front and center of the American consumers’ mind. Just as a reminder, elections are not won or lost by MAGA voters or Progressives, they are ultimately won by the marginal voters in the middle. And those marginal voters do not care if Donald Trump or Joe Biden says that inflation is down–they care about what their own personal expenses look like and right now Americans are not happy. While it’s natural for a new president to have higher initial numbers that ultimately come back to reality, a look at the specifics of Mr. Trump’s net approval number collapse (courtesy of The Economist magazine) should be concerning:

Note the sharp fall in both inflation/prices and the economy and jobs. Mr. Trump owns the economy now, and all his blaming of Mr. Biden and the Fed will not matter to voters–the Fed isn’t on the ballot, he and the Republicans are.

But back to monetary policy. As you can see below, the actual money coming into the economy is now close to what should be normal with low inflation–it’s hard to say that a growing rate of money supply growth around 5-6% is very restrictive.

Certainly many measures of financial liquidity agree with this (e.g., credit spreads are at record lows, stock markets remain bouyant at very high valuations). And the reaction of the long-dated treasuries don’t seem to agree with Mr. Trump; the Fed’s initial .25% cut last week was not matched by the longer bonds–they actually went slightly up.

Nevertheless Mr. Trump continues to double down on tariffs. He is playing with fire.*

* Some of you will correctly note, “hey you’re just just giving us another opinion. Mr. Trump has won two national elections and you’ve never won anything.” True enough. But I have observed a few things. Like in 2010 when the old bulls of the Democratic party finally had the complete power (including 60 Senate votes) to jam through unpopular bills like Dodd-Frank and Obamacare. They knew it was going to cost them the elections in the mid-terms, but they didn’t care–they correctly noted that once they got it approved, it would be near impossible to remove. They had waited 40 years (most of them came in after Watergate) and it was the culminating achievement–they didn’t care about elections. It seems to me that Mr. Trump is behaving the same way–after all, he’ll never personally be on the ballot again and he has a vision of what an American economy ought to look like. But Democrats will put him on the ballot in every congressional race. The only thing that keeps a Democratic victory in the House uncertain in my mind is that they insist on making their party a stench to most American voters. They have refused to move any to the middle, and now in their anger have, if anything, moved further left (e.g., Mamdani). As always, Mr. Trump is well-served by his enemies.