Donald Trump’s aggressive immigration policies—including what the White House claims is an average of 750 deportations a day—are contributing to rising prices, according to Moody’s chief economist Mark Zandi. He told Fortune that if the current pace continues, inflation could climb from 2.5% to nearly 4% by early next year.
Zandi’s warning is based on recent inflation data. “The foreign-born labor force is shrinking, and the overall labor force has been flat since the start of the year,” he said. “That’s tightening many markets and driving up costs.”
The Labor Department reported Thursday that the producer price index (PPI)—a measure of wholesale inflation—jumped 0.9% from June to July, the largest monthly increase since 2021. Compared with a year earlier, wholesale prices rose 3.3%. Services costs, up about 1.1%, accounted for more than three-quarters of the increase. Earlier this week, data showed the core consumer price index ticked up 0.2%.
The White House dismissed the notion that deportations are fueling inflation, framing the crackdown as a strategy to tap “untapped potential” in the domestic workforce. Spokesperson Abigail Jackson told Fortune that more than one in 10 young Americans are neither working nor in school, and emphasized the administration’s focus on “protecting the American workforce” so that job gains benefit native-born workers.
Since Trump returned to office, Jackson said, “100% of job gains have gone to native-born American workers.”
However, Heritage Foundation economist Steve Moore, who recently reviewed alternative jobs data with Trump, warned of potential labor shortages. “Deporting working undocumented immigrants could slightly impact wages and prices,” he said.
Two Camps, Two Views
Zandi’s perspective is part of a broader split among economists following a surprising July jobs report showing weak job creation and significant downward revisions to prior months.
Zandi and other economists at Morgan Stanley, Barclays, and Bank of America argue that hiring has slowed because Trump’s deportations, border restrictions, and what Zandi calls “self-deportations” have artificially constrained the labor supply.
“It’s the southern border being shut down, it’s deportations, it’s self-deportations,” he said. “Immigrants are leaving the country, scared to come in and work.”
He estimates the annual number of immigrants—both legal and undocumented—has fallen from roughly 4 million in 2023 to just 300,000–350,000 today. This, he says, is significantly driving up costs in industries that rely heavily on immigrant labor: construction, agriculture, manufacturing, transportation, hospitality, retail, elder care, child care, and other personal services.
Fresh and dry vegetable prices, for example, surged nearly 40% in the latest PPI report. While tariffs and weather contribute, Zandi emphasizes immigration restrictions as a major factor.
“You can see it in meat prices, agriculture, food processing, haircuts, dry cleaning,” he said. “The fingerprints of restrictive immigration policy are all over the CPI and PPI numbers this week.”
If Zandi is correct, the Federal Reserve could hold rates steady without triggering mass layoffs because hiring weakness stems from fewer available workers, not declining demand.
The other camp of economists points to a genuine slowdown in labor demand. Businesses in manufacturing, transportation, and warehousing have been cutting payrolls for months, and surveys show declining job openings. In this view, Trump’s policies may only play a minor role, with the primary drivers being lower business confidence and softer consumer demand.
Fed Policy in Focus
The distinction matters for monetary policy. A true drop in labor demand tends to reduce wage pressures, giving the Fed room to cut rates. But recent data showing both slowed hiring and rising prices complicates the picture.
Zandi stresses that immigration-driven inflation is a supply-side shock—something interest-rate adjustments cannot easily resolve. “Demand-side inflation has different implications for monetary policy than supply-side inflation,” he said. “Rate cuts won’t bring more immigrants into the country.”
He also predicts that inflationary pressures from immigration restrictions will be more persistent than those caused by tariffs.
“Tariffs are usually one-off,” Zandi said. “Restrictive immigration adds to shortages, higher labor costs, and wages—creating a self-reinforcing cycle.”
Bank of America economists echo concerns over stagflation, expecting the Fed to avoid cutting rates this year. Markets, meanwhile, have largely absorbed the data, with the S&P 500 near record highs in anticipation of a September rate cut. Bond traders are pricing in a slightly more hawkish Fed, nudging short-term Treasury yields higher.
The Way Forward
Zandi believes easing immigration restrictions could quickly help reduce inflation. “If we had a rational immigration policy allowing workers of all skills into the country, it would be a game changer,” he said, noting immigrants’ outsized role in entrepreneurship and innovation.
He declined to speculate on whether the White House will acknowledge the link between deportations and inflation.
“Tariff inflation isn’t the main reason for these restrictive immigration policies,” he said. “There are many other motivations.”
