Inflation Is Back on the Menu for 2025

Jerome Powell and his cohort at the Fed have an abysmal record when it comes to gauging inflation. 

Remember, Powell is the guy who spent more than a year telling Americans that it was just an aberration in the wake of the pandemic. 

While people like me wrote thoughtfully and accurately about the soaring prices we were witnessing with our own eyes — calling the Fed out on its outdated metrics and willful blindness to the matter — Powell was calling us alarmists and insisting that inflation was non-existent or “transitory.”

Heck, even when Powell and the Fed finally acknowledged reality toward the tailend of 2021, they didn’t start raising interest rates to address the problem until March 2022.

It was a massive embarrassment and the principal reason prices got so out of control. So I’m not surprised they’ve done an equally bad job guiding the current interest rate cycle.

At least Powell finally acknowledged his shortcomings, candidly admitting last week that the FOMC’s year-end inflation projection has “kind of fallen apart.”

Where the Fed had previously expected to graze its 2% target next year, the committee now sees inflation at 2.5% by the end of next year. They don’t see inflation hitting 2% until 2027. And the forecast for future rate reductions has been trimmed from 1% to 0.5%.

The dismal downward revision tanked the markets last week, but at least they’re copping to it. They’ve clearly learned that simply denying reality doesn’t work as a policy.

And to be fair, it was a difficult ask of the Fed to predict 2025 in September, when they had no idea how November’s election would impact future policy.

Of course, we now know Donald Trump will be returning to the Oval Office — bringing with him a set of economic policies that run completely contrary to Biden/Harris.

Gutting the federal workforce, deporting an untold number of immigrants, and implementing tariffs on foreign imports will create huge disruptions for the U.S. economy.

Last week, for example, I mentioned the struggles Ford and GM will face. They, along with other automakers, rely on government incentives to prop up electric vehicle sales.

They also rely on Mexico and Canada for manufacturing and part supplies. That makes them vulnerable to Trump’s proposed changes, which, in his words, include “a 25% tariff on ALL products coming into the United States” from those countries.

Trump has also threatened to place a 60% tariff on goods from China and a potential 100% tariff on BRICS countries if they attempt to move away from the dollar.

These import taxes would impact consumer electronics, including smartphones, computers, TVs, and appliances, as well as prices for food and clothes.

Major retailers including Target, Walmart, and Lowe’s have said as much themselves.

“Our model is everyday low prices. But there probably will be cases where prices will go up for consumers,” Walmart CFO John David Rainey conceded in an interview with CNBC.

Executives at Lowe’s, America’s second-largest hardware chain, also admitted the 2025 pricing could be challenged by new Trump’s policies on their latest earnings call in November.

“I'll just mention roughly 40% of our cost of goods sold are sourced outside of the U.S., and that includes both direct imports and national brands through our vendor partners,” said Brandon Sink, the company’s executive vice president and CFO. “And as we look at potential impact, [tariffs] certainly would add product costs, but timing and details remain uncertain at this point.”

And just last week, Conagra Brands — parent to food labels like Slim Jim, Birds Eye, Reddi Wip — hiked its inflation outlook from 3.2% to 4%.

Again, it’s not just tariffs, either. Plans to round up millions of undocumented immigrants would affect prices too, as such workers make up roughly 5% of America’s workforce. Labor shortages could be especially acute in industries like agriculture, construction, health care, and hospitality. 

Suddenly bereft of workers, these industries could be forced to pay more for labor or see steep reductions in output, thus driving their own costs and prices for their goods and services higher.

Again, though, the exact impact is difficult to forecast. It largely depends on just how many workers are deported and how quickly. However, estimates range from a 1.5% increase in prices on the low end and 9% increase on the high side.

That’s a lot for economists to work out, which helps account for the Fed’s sudden shift in tone. But one thing is for sure: Things are going to be a lot more chaotic in the next few years.

And chaos means volatility.

Fight on,

Jason Simpkins

Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more…

In 2023 he joined The Wealth Advisory team as a defense market analyst where he reviews and recommends new military and government opportunities that come across his radar, especially those that spin-off healthy, growing income streams. For more on Jason, check out his editor's page.

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