Inflation has yet to cool down, and Trump plans to issue another $5,000 "election dividend"! Economists warn: This is nothing short of adding fuel to the fire

According to Zhitong Finance APP, on September 9 local time, U.S. President Trump attended the Republican midterm election rally in Dallas and stated that if Republicans succeed in gaining a majority in both the House and Senate in the midterm elections, he promises to distribute $5,000 to every American adult. Trump said this sum would be called the "Trump Dividend." However, economists say that this proposal is unlikely to become a reality. They indicate that even if eventually implemented, a one-time direct payment would not significantly ease the financial burden on the public and might further drive up consumer prices in the coming months.

With only a few weeks left until the November midterm elections, American consumers generally remain pessimistic about their own financial situations. Although Trump’s promise comes at a time when many Americans are feeling particularly financially strained, the tariff war launched by Trump last year and this year’s war on Iran leading to high oil prices are precisely part of the financial pressures facing some Americans.

Data analysis from PNC Financial Services Group shows that high prices have already put pressure on voters and are the main reason for the long-term decline in consumer confidence. A report from The Conference Board indicates that consumers’ outlook on the short-term future further dipped into negative territory in August. The latest University of Michigan consumer survey also shows that consumer confidence further deteriorated amidst concerns that inflation will remain high.

However, economists state that directly distributing funds to consumers is generally considered inflationary and could lead to further price increases, thus diminishing the original effect of the stimulus checks. Brian Bethune, economics professor at Boston College, said when talking about Trump’s promise, “This makes absolutely no economic sense.”

Brian Bethune pointed out that as the prolonged war between the U.S. and Iran causes oil prices to surge past $100 per barrel and trade tensions with Canada and other countries continually intensify, supply-side issues are driving prices higher. He stated: “If you increase spending when there are supply issues, you only make the problem worse. It’s like bailing water out of a boat while punching a hole in the bottom at the same time.”

He noted that there is recent precedent: “We encountered this problem during the COVID-19 pandemic. We injected all kinds of spending, and the result was accelerated inflation.” According to a 2023 study by the Federal Reserve Bank of St. Louis, government fiscal stimulus during the pandemic raised the U.S. inflation rate by approximately 2.6 percentage points.

Economists pointed out that the 2021 American Rescue Plan indirectly pushed up prices by increasing the funds in consumers’ hands. The Consumer Price Index (CPI) peaked at 9.1% in June 2022, the highest since 1981. Currently, the CPI is at 3.4%.

Heather Long, chief economist at Navy Federal Credit Union, stated in an email: “During the pandemic, Americans loved the stimulus checks, and now, as many struggle to make ends meet, a $5,000 check would surely be welcomed.” “But this would be a short-term gain followed by a lot of long-term pain. It would worsen inflation and further drive up the costs of housing, cars, credit cards, and business financing.”

High borrowing costs and rising prices for essentials such as groceries and gasoline have been major pain points for most American households. As inflation remains above the Federal Reserve’s 2% target, the market believes the possibility of a rate hike at the upcoming September Fed policy meeting is increasing. Heather Long stated: “The Federal Reserve should raise rates in September because the risk of persistently high inflation is rising. Ultimately, prices are still going up.”

Meanwhile, against the backdrop of the U.S.'s mounting debt, Brian Bethune said, distributing such a “windfall” expected to cost over $1 trillion is a bad idea: “You’re expanding the fiscal deficit. You’re facing an above-target inflation rate at the same time as the [Federal Open Market Committee (FOMC)] continues to meet. You’re pushing the economy towards a crisis.” The U.S. Treasury reported in August that the federal deficit—the gap by which federal government spending exceeds income—was approaching $1.8 trillion.

Brett House, economics professor at Columbia Business School, said any direct payment “would raise an already-high federal deficit, fuel inflation, drive up interest rates, and put the overall U.S. economy in a weaker position.” However, he noted that Trump’s latest dividend promise is unlikely to ultimately become policy. Although Trump has previously proposed direct cash handouts to Americans, any such broad-based welfare plan would require congressional legislation.

It is worth noting that Trump has previously supported a $5,000 “DOGE Dividend” and a $2,000 “tariff rebate,” but neither plan was ultimately implemented. Brett Ho added, “Even if the president makes good on his latest dividend check promise, this politically motivated move could be halted by the courts, or simply clawed back later by raising taxes.”