Minutes from the U.S. central bank’s latest meeting described the December rate cut as “finely balanced,” and some participants suggested keeping rates higher to continue fighting inflation. Officials claim inflation is now sticky, citing President Trump’s proposed policies as a catalyst likely to increase it.

But is there any merit to their claims?

Well, that’s a bit of a loaded question because, first of all, actual inflation is already far higher than reported by officials. Many recent policies enacted by the Biden administration are currently increasing inflation, and some of the policies Trump will enact will increase costs in some sectors of the economy, which is a more limited form of inflation—but the latter is temporary and necessary to reduce inflation.

So, they’ve used a bit of truth to mask a more significant lie. However, this is pretty standard from the “official sources,” considering their history of spreading misinformation and getting predictions wrong. For example, over the last several years, Jerome Powell and Janet Yellen insisted inflation wasn’t an issue.

First, the claim was that it didn’t exist…that it was just a made-up talking point from the right. Then it charged to “inflation is transitory” and will be over soon. Only recently have they started to admit that inflation is, in fact, sticky and will be with us for years, just as I’ve been saying for years in my column here.

When it comes to Trump's policies, a few, in particular, will significantly impact our economy, which we will discuss in a moment. Still, the critical thing to remember in this situation is that undoing decades of poor fiscal policy to put our economy back on solid footing again will take longer than anyone would like. It will involve some “pain” along the way.

That being said, let’s break down some of the policies Trump has proposed and their likely impact on the economy.

Cutting wasteful government spending

The first and most significant is the Department of Government Efficiency, known as DOGE, intended to cut unnecessary and wasteful government spending. As proposed, this advisory commission won’t simply look to shave a few percent off of budgets here and there. Instead, it has a stated goal of eliminating government organizations and programs to cut costs exponentially. This is critical to achieving financial sustainability because the interest payment on our national debt now exceeds our entire defense budget. This is all driven by excessive government spending.

While this is necessary, it won’t be pain-free. There are two reasons for this, the first of which is that 36.26% of America’s GDP is government spending, so cutting government spending may temporarily reduce our GDP. As this can affect how other nations perceive our financial strength, it can also affect whether they want to invest in our Treasury Bills, which is how we finance our country.

A significant drop in volume could leave us in a precarious position. The second reason is that the employees working for those government agencies and the businesses and individuals that profit from them will all have a sudden and significant, if not complete, reduction in income.

This will lead to layoffs, increasing unemployment numbers and making the job markets more competitive while increasing unemployment-related costs. It’s worth noting that these costs will be less than the costs to maintain these agencies, but it’s a factor we need to be aware of.

Comprehensive immigration reform

Solving our illegal immigration crisis is another policy that will have a far-reaching economic impact. Over the last four years, we’ve watched a record number of immigrants pour through our borders, driving all types of crime—especially financial crimes, and putting an added burden on our welfare system. This needs to be addressed quickly and decisively, which creates a different problem with an entirely different set of financial implications.

Closing our borders is essential, as is deporting those who have entered the country illegally. Still, many of those people currently perform the work that’s essential for our society to function, including agriculture, construction, food service, and hospitality, to name a few.

These low-paying jobs are hard work and need to be done, but many Americans aren't willing to do them, so that puts us into a position where we may have to wait longer, pay more, or both.

With inflation eroding the value of our dollar, things like groceries and housing are already becoming too expensive for many Americans today, and deporting the people who perform a large portion of the work to make these necessities available will further exacerbate this problem. That’s not to say it shouldn’t be done, but we need to be aware of the negative side of this policy. Again, this is a necessary policy, but it will create economic pain until we reach equilibrium, which will likely take several years.

Implementing tariffs to offset trade deficits

Another policy that’s been in the news lately is tariffs, which have been wildly misrepresented. The way the media has reported on the topic, one might be tempted to think that tariffs were just invented by Trump on the campaign trail this election season. Still, they’re how we funded our government for most of our country’s existence. Then, the income tax was introduced in 1913, but on top of rather than instead of tariffs. Tariffs have been reduced dramatically since the 1930s, but all types of taxes have increased significantly since then.

Let’s get the undeniable reality out of the way—yes, tariffs will raise some products' prices. But that can be offset by reducing taxes, and not just income tax, but also the “hidden” taxes most Americans never see because they’re imposed on businesses behind the scenes, with every single transaction, starting from raw materials first being imported to the final sale to a consumer.

This results in double-digit percentage price increases on everything we buy that most citizens don’t even realize. Reducing these burdensome and unnecessary costs will unleash small businesses to create real growth, drive hiring and innovation, and invigorate our economy for everyone.

What does our timeline look like?

When it comes to the government, everything moves slowly, especially when you realize that entrenched bureaucrats who want to maintain the status quo must be dragged kicking and screaming to achieve any real change.

Plus, we have decades of poor economic policy to undo, and many Americans will get squeamish when the pain starts to kick in. This will become more intense as we approach the midterm elections.

Between the necessary economic discomfort and the media barrage against our elected officials trying to change course for the better, there’s a high likelihood that some citizens won’t have the resolve to see it through to completion. This is precisely what has happened multiple times, and there’s no reason to expect that to change this time.

If we follow through, we will face a period of financial challenges. Still, on the other side, once our economy is back to solid fundamentals and operating on effective monetary policies, we will again be an economic powerhouse with a strong and resilient economy.\

This is exactly what happened in Argentina when President Milei implemented what many considered to be extreme austerity measures to combat the country’s out-of-control inflation. Just over a year later, following massive cuts to government spending, coupled with many reforms like those proposed by President Trump, the country is already performing exponentially better financially.

The only question is, do enough of us have what it takes to stay the course until we’ve achieved the goal of restoring our own nation's financial security?

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Dr. David Phelps created Freedom Founders to help its members achieve the freedom they wanted in their lives by building the necessary financial foundation. He is a noted financial expert who is regularly cited by the media, and recently helped the FL Dept. of Education develop its new financial literacy curriculum.