President Donald Trump has pledged cheaper prices and lower interest rates, but an economy transformed by the pandemic will make those promises difficult to keep. Economic growth is solid, driven by healthy consumer spending. And budget deficits are huge and could get even larger. Meanwhile, businesses are borrowing more to step up their investments in data centers and artificial intelligence, leading to a greater demand for loans that can raise interest rates. And if Trump follows through on his promises to impose widespread tariffs on imports and deport millions of immigrants, economists expect inflation could worsen — making it less likely the Federal Reserve will cut its key interest rate much this year. All of these trends will likely keep borrowing costs higher, including for homes and cars. Yet on Thursday during the World Economic Forum’s annual event in Davos, Switzerland, Trump said he would reduce oil prices, and then “I’ll demand that interest rates drop immediately, and likewise, they should be dropping all over the world.” Later, in Washington, Trump told reporters that lower energy costs would reduce inflation, which would “automatically bring the interest rates down.” Asked if he expects the Fed to listen to him on rates, Trump said: “Yeah.” Yet Trump may be facing a bigger challenge than he expects. The surprising resilience of the economy — which has weathered the aftermath of the pandemic, an inflation spike, and several recession scares just in the past few years — may keep borrowing costs higher. Jan Hatzius, chief economist at Goldman Sachs, says the economy is “in the sweet spot of healthy growth.” It has expanded at an annual rate of at least 3% for four out of the last five quarters, the longest such streak in a decade. Unemployment is at a historically low 4.1%. And inflation, which soared to a four-decade high in 2022 and soured most Americans on the economy, is back down to 2.4%, according to the Fed’s preferred measure. Wages, which badly trailed prices in 2021 and 2022, have risen faster than inflation for the past 18 months, which provides the needed fuel for ongoing growth. A healthier economy spurs more Americans to borrow to buy cars, homes, and large appliances, and businesses to invest in IT equipment and factories. Such moves are great for the economy — but more demand for loans to fund all that spending can also keep interest rates elevated. And steadier growth could keep prices higher. Companies that see healthy consumer demand may decide they can charge more, as Netflix announced it would do Tuesday after signing up a surge of subscribers. Such trends are a big change from the last time Trump entered the White House in 2017. Back then, the U.S. economy was emerging from an extended period of sluggish growth and very low inflation that followed the painful 2008-2009 Great Recession. Millions of households saved more and spent less after a borrowing binge earlier in the decade that drove up mortgage and credit card debt. “Households were shrinking their balance sheets relative to their income, and that’s a very significant disinflationary force that is not present now,” said Julia Coronado, president of MacroPolicy Perspectives and a former Fed economist. Today, most households are carrying less debt and upper-income families in particular are benefitting from […]