With the federal government now reopened after a six-week shutdown, we’re witnessing some remarkably positive economic developments. The annual inflation rate has dropped to 2.7 percent, while the growth rate has surged to 4.3 percent. It’s becoming clear that President Trump’s economic policies are starting to bear fruit.
When Trump took office, inflation stood at 2.9 percent. While it dipped to 2.4 percent last spring, it ticked up to 3 percent by September. However, the recently reported November inflation rate of 2.7 percent underscores a promising downward trend.
Initially, GDP contracted at an annual rate of 0.5 percent in the first quarter of 2025. Yet, in the second quarter, the first full quarter of Trump’s presidency, the growth rate rebounded to 3.8 percent. The latest announcement reveals that the growth rate for the third quarter has soared to an impressive 4.3 percent.
The rationale is straightforward: Trump’s economic agenda, grounded in supply-side economics, is designed to spur faster growth while curbing inflation which is a strategy with a proven track record of effectiveness.
So, what precisely is supply-side economics?
In the early 1960s, economists convinced government officials that demand-side economic policies could solve the problems of high inflation and slow growth with high unemployment.
They reasoned that if the economy was experiencing slow growth, the government could cure this simply by increasing total demand in the economy. This could be accomplished by having the government increase spending which increases demand and grows the economy. That will also reduce unemployment.
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Government officials questioned that simply increasing government spending would create a deficit in the budget. Economists responded by saying deficits don’t really matter. It is more important to grow the economy and reduce unemployment.
The economists also noted that since there was slow growth, the increased spending should not lead to an increase in inflation. The result of this policy was massive annual deficits and an exploding public debt.
Although never fully implemented, these economists also said that to reduce inflation the government could simply reduce spending. Or they could raise taxes. Those actions would reduce demand and put downward pressure on prices, thereby reducing inflation.
In the 1970s the economy experienced rapid increases in inflation. The 1970s also saw two recessions and generally slow growth. By the late 1970s, this became known as Stagflation.
Demand side policies could not solve the stagflation problem. Increasing demand could lead to more growth, but it would also lead to more inflation. Decreasing demand could lower inflation, but it would lower economic growth. It became obvious demand side economic policies could not solve stagflation.
In the 1980s, monetary policy was implemented to tackle inflation. However, the government sought to ignite economic growth without further inflating prices. Enter supply-side economics: strategies aimed at enhancing total output (supply) would lead to increased economic growth and reduced unemployment, while simultaneously applying downward pressure on prices.
The results were striking. In 1980, inflation exceeded 13 percent. Following the implementation of restrictive monetary policy and supply-side tax cuts in 1982, inflation plummeted to 4 percent by 1984. Inflation continued to decline, remaining largely below 3 percent for the next four decades, primarily due to prudent monetary policy. Economic growth also thrived, reaching over 7 percent in 1984.
Today, President Trump is harnessing these same supply-side principles to drive the economy forward. By rolling back counterproductive regulations, significantly lowering energy costs, and promoting business investment through the 100 percent expensing of investments in the year the investments are made, the overall supply in the economy is poised to swell.
Recent data indicating a decrease in inflation and an uptick in economic growth lend credence to this approach. While one or two data points do not establish a definitive trend, historical evidence suggests that supply-side policies are likely to sustain this positive trajectory.
In 2018, Congress enacted proportionate tax cuts of 10 percent for nearly all Americans, boosting demand while simultaneously lowering the corporate tax rate to provide businesses with more capital for investment. Additionally, the reduction of burdensome regulations created a more favorable environment for growth.
Prior to 2018, economic growth hovered around 2 percent. After the implementation of these tax cuts, growth nearly reached 3 percent and had the Federal Reserve not raised interest rates four times that year without justification, growth likely would have surged even higher.
Looking ahead, Trump's supply-side policies are set to be fully executed, and the latest data suggest that the trends of lower inflation and higher growth will persist. As a result, in 2026, we could see GDP growth reaching as high as 5 percent, coupled with an annual inflation rate tapering down to 2 percent by year-end.
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