'Liquid gold'
Trump has called for increased domestic oil and gas production through aggressive drilling, a strategy he believes is key to combating inflation.
“We are going to have energy,” Trump said, adding that the U.S. is rich in “liquid gold,” referring to oil and gas.
Energy prices did play a role in driving the inflation that the U.S. experienced in recent years. Global energy prices, particularly oil and natural gas, surged due to a variety of factors such as increased post-pandemic demand, supply chain disruptions and geopolitical events like Russia's invasion of Ukraine.
But the U.S. has produced more crude oil than any other country in the world over the past six years, according to the U.S. Energy Information Administration, including a record 12.9 million barrels per day in 2023.
Trump made a bold claim about what his energy strategy could accomplish if he wins the presidency.
“We're going to drill, and we're going to take it out, your energy bills will be 50% lower one year from January 20,” he said.
However, experts are doubtful this goal is at all achievable, arguing that significantly increasing production isn’t as simple as the “drill, baby, drill” slogan suggests.
Michael Webber, a professor of energy resources at the University of Texas at Austin, dismissed Trump’s tagline to The Wall Street Journal as “mostly just bluster, because the president actually doesn’t have any direct control.”
The newspaper notes that middling oil prices and historically low natural-gas prices this year have given companies little incentive to ramp up production. Adam Rozencwajg, managing partner at natural-resource investment firm Goehring & Rozencwajg, echoed Webber’s skepticism.
“There is nothing that you could wave your magic wand at from a political perspective and get that kind of an increase in production,” Rozencwajg remarked to The Journal.
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Get StartedBring down interest rates?
Energy isn’t the only factor Trump plans to tackle in his strategy to combat inflation.
“We're going to bring it down with energy and interest rates,” he said.
Trump emphasized the impact elevated interest rates have had on the U.S. economy and the challenges higher rates pose for Americans.
While Trump has vowed to lower interest rates, his direct control over them is limited. In the U.S., the federal funds rate — which heavily influences the cost of borrowing money — is set by the Federal Reserve, which operates independently from the executive branch. The Fed adjusts rates based on a variety of economic indicators, including inflation and employment data, with the goal of maintaining stable prices and maximizing employment.
A president can influence monetary policy indirectly, such as by nominating Federal Reserve governors who may share similar economic views to head the U.S. central bank. However, direct control of interest rates is not within the president’s immediate powers.
Interestingly, the current Fed chair, Jerome Powell, was nominated by Trump in 2018. But Trump has since expressed dissatisfaction with Powell, stating in an interview with Fox Business that he wouldn’t nominate Powell for an additional term.
Brett House, an economics professor at Columbia Business School, suggested a president’s opinion should not sway the Fed’s decisions.
“Any chairman is going to remain loyal to the Fed’s mandate over any browbeating from the White House,” House said.
Moreover, the high interest rates we’re seeing today are actually part of the Fed’s strategy to fight inflation. In response to spiking prices in 2021 and 2022, the Fed raised interest rates aggressively between March 2022 and July 2023, hiking them by a total of 525 basis points.
Higher interest rates make borrowing more expensive for both consumers and businesses, which tends to reduce spending and investment. By slowing demand, the Fed aimed to bring inflation back under control. So, while the high rates are challenging, they’re part of a broader effort to stabilize prices.
The Fed is already cutting rates
Headline inflation has subsided in the U.S. In September, the U.S. consumer price index saw an annual increase of 2.4%, compared with the 9.1% increase registered in June 2022.
As inflation cools, the Federal Reserve has begun shifting away from its previous hawkish stance. On Sept. 18, the U.S. central bank implemented its first rate cut since March 2020, lowering the target for the federal funds rate by 50 basis points to a range of 4.75% to 5%. And while Powell did not provide a definitive outlook, he recently hinted that more rate cuts could be on the horizon.
In other words, the Fed is already in the process of lowering interest rates — something Trump has pledged to do as part of his strategy to combat inflation.
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