A Solid Economy for Trump’s Second Term
When President Barack Obama took office in 2009, he faced an economy in turmoil with rising unemployment, plunging markets, and widespread foreclosures. In contrast, President Donald Trump inherits a much healthier economy as he begins his second term, vowing sweeping reforms through executive actions and major legislation.
As of December 2024, the unemployment rate stood at a low 4.1%, one of the best positions an incoming president has inherited in decades. Only Presidents George W. Bush (2001) and Richard Nixon (1969) began their terms with a better unemployment rate.
Despite concerns over the cost of living and potential risks of inflation, the US economy remains robust. The job market is thriving, wage growth is outpacing inflation, and overall economic growth continues to exceed expectations.
“The president is inheriting a very healthy economy,” said David Kelly, Chief Global Strategist at JPMorgan Asset Management.
Economic Uncertainty Looms
While a change in leadership naturally brings uncertainty, Trump’s aggressive approach is amplifying the impact. His administration is starting with a wave of executive actions addressing energy, immigration, and government operations.
Trump’s promises include:
- Massive tariffs on trade partners.
- Deregulation of key industries.
- Tax breaks for businesses and individuals.
“Uncertainty acts like a tax on the economy,” Kelly explained. “Without clear plans, businesses may hesitate to invest, slowing economic momentum.”
Trade and Tariff Challenges
One key area of uncertainty is Trump’s trade policy. The president has vowed to impose 25% tariffs on Canada and Mexico starting February 1. However, no formal executive order has been signed, leaving businesses in limbo.
Other nations, like Canada, have threatened retaliatory tariffs, escalating fears of a potential trade war. Questions persist:
- How high will tariffs go?
- How long will they last?
- How will other countries respond?
Trump also reiterated plans to establish an External Revenue Service to collect tariff revenue, but critics argue these costs will ultimately fall on US importers, not foreign exporters, and may raise consumer prices.
Cost of Living: A Pressing Concern
Americans remain frustrated by the high cost of living, with families spending an average of $1,213 more per month than in January 2021, according to Moody’s Analytics.
Although paychecks are rising, many households are only breaking even, while others are still falling behind. Trump has pledged to lower prices, but economists warn that achieving pre-pandemic price levels would require extreme measures, potentially risking a recession or even a depression.
Inflation and Overheating Risks
Some of Trump’s policies, such as tariffs and potential mass deportations, could worsen inflation.
- Tariffs may increase costs for businesses, which could be passed on to consumers.
- Worker shortages in industries like construction and agriculture could drive wages – and prices – higher.
While the inflation rate has decreased, it remains above the Federal Reserve’s target. Markets, buoyed by interest in Big Tech and AI stocks, are hitting record highs, sparking concerns of overheating.
“We worry more about upside risks to growth and inflation,” said Torsten Slok, Chief Economist at Apollo Global Management.
Real Wage Growth: A Key to Success
Trump’s economic legacy may depend less on lowering prices and more on maintaining real wage growth, a trend that began under President Joe Biden.
As long as paychecks outpace prices, more Americans will regain financial stability and adapt to higher costs. Sustained wage growth could help alleviate frustrations over the cost of living and bolster economic confidence during Trump’s term.
“The US economy is entering 2025 on a firm footing,” Slok said. “Real wage growth is key to ensuring long-term stability.”
