As Trump gambles with more economic stimulus, the Fed is poised to counter inflation

Men unload vegetables at Grand Central Market in Los Angeles, California, March 9, 2015. REUTERS/Lucy Nicholson

WASHINGTON (Reuters) – U.S. President Donald Trump with his budget proposal raises his bet that he will boost the economy before high inflation and interest rates get in the way.

Congress has already given him tax cuts and increased deficit spending that is expected to stimulate the economy.

But here’s the risk: Trump’s stimulus could boost hiring without triggering the kinds of company investments that make workers more productive. With workers in short supply in many industries, the wages that are now increasing could get eaten away by higher inflation.

Trump’s $4.4 trillion budget proposal, unveiled on Monday, suggests Congress could cut the federal budget deficit by $3 trillion over 10 years. That’s unlikely.

The budget proposal follows business and household tax cuts enacted last month and a federal funding law passed last week that could push budget deficits to around $1 trillion a year.

The 2019 fiscal budget that Trump just submitted asks for $200 billion for infrastructure spending over 10 years, $18 billion over two years for his wall along the Mexican border and $13 billion to deal with the opioid crisis. It also provides for $716 billion for military programs and for maintaining the U.S. nuclear arsenal.

Congress has already given him tax cuts and increased deficit spending that is expected to stimulate the economy.

But here’s the risk: Trump’s stimulus could boost hiring without triggering the kinds of company investments that make workers more productive. With workers in short supply in many industries, the wages that are now increasing could get eaten away by higher inflation.

Trump’s $4.4 trillion budget proposal, unveiled on Monday, suggests Congress could cut the federal budget deficit by $3 trillion over 10 years. That’s unlikely.

The budget proposal follows business and household tax cuts enacted last month and a federal funding law passed last week that could push budget deficits to around $1 trillion a year.

The 2019 fiscal budget that Trump just submitted asks for $200 billion for infrastructure spending over 10 years, $18 billion over two years for his wall along the Mexican border and $13 billion to deal with the opioid crisis. It also provides for $716 billion for military programs and for maintaining the U.S. nuclear arsenal.