Trump’s sweeping agenda injects uncertainty into a healthy economy

When President Barack Obama took the oath of office in January 2009, unemployment was surging, markets were plunging and families were losing their homes. He inherited an economic calamity.

President Donald Trump has been dealt a far stronger hand – even as he returns to the White House vowing to dramatically reshape the American economy through a flurry of executive action and sweeping legislation.

The unemployment rate ended 2024 at just 4.1%. The only incoming presidents to inherit a lower unemployment rate were President George W. Bush in January 2001 and President Richard Nixon in January 1969.

Although the cost of living remains a major frustration and risks of reigniting inflation remain, the US economy is broadly in good shape as Trump takes power. The jobs market is enjoying a historic period of uninterrupted growth, wage increases are beating price gains and overall growth continues to defy expectations.

“The president is inheriting a very healthy economy,” said David Kelly, chief global strategist at JPMorgan Asset Management.

Major questions loom

One thing that could cool the US economy off a bit is the sheer amount of uncertainty that is being injected into the economy right now.

It’s natural to have some uncertainty when there is a change in power in Washington, with the new party bringing in their own ideas and philosophies.

Yet Trump is starting his second term with a bang, enacting a flurry of executive actions on his first day covering everything from energy and immigration to how the federal government functions.

Trump has promised that this is just the beginning, vowing to impose massive tariffs, slash a breathtaking amount of red tape and provide new tax breaks to businesses and individuals.

“Uncertainty is a tax on the economy,” said JPMorgan’s Kelly. “In football you may want to keep your opponent in the dark. But if you’re managing an economy, you want to make your plans clear. If you don’t, people may wait to make decisions and that tends to slow the economy down.”

Questions continue to swirl over Trump’s trade agenda.

Trump has vowed to impose massive tariffs on allies and rivals, but the exact timing and impact of those tariffs remain unclear. For example, he said Monday he would impose 25% tariffs on Canada and Mexico on February 1 but failed to sign an executive action directing those tariffs to go into effect.

On other nations, Trump said his administration might impose across-the-board tariffs but it wasn’t ready to do that yet. How high will tariffs go and how long will they stay high? How will other countries respond? Some, like Canada, have vowed to retaliate with tariffs and other actions of their own.

During his inaugural address, Trump promised to “immediately begin the overhaul of our trade system to protect American workers and families” and even reiterated plans to set up an External Revenue Service to collect tariff revenue. (Although Trump said foreign countries will get taxed, tariffs are paid by US importers, not foreign exporters. And they often pass the costs on to consumers in the form of higher prices.)

The cost of living challenge

Trump knows that the biggest frustration for many Americans is the level of prices. People are spending much more at the grocery store, on rent, car insurance and other items than before the pandemic.

The typical US household is spending about $1,213 more than in January 2021 for the same goods and services, according to Moody’s Analytics.

Paychecks, on average, are up by a bit more than that. Still, that means many people are just getting by with the higher cost of living, and many others are behind.

Trump has said he will get prices to drop, but many economists doubt that will broadly happen – unless the economy falls apart. While consumers love price drops, outright deflation can be dangerous and difficult to escape.

“You can’t get prices back to pre-pandemic levels. The only way to do that is to get not a recession, but a depression,” said Kelly. Trump acknowledged that recently, noting once prices rise, it’s hard to get them back down again, but insisted he can make it happen.

Yet many mainstream economists have expressed concern that elements of the Trump agenda could be inflationary.

Businesses could pass along the cost of tariffs to consumers, as they have done in the past. And mass deportations could starve key construction, agriculture and other industries of workers.

As it is, there are concerns that the US economy is too hot – and that the Trump agenda could overheat it. The inflation rate has tumbled but remains above the Federal Reserve’s target. Markets have shattered record high after record high, fueled by a rush into Big Tech and artificial intelligence stocks.

“The bottom line is that the US economy is entering 2025 on a firm footing,” Torsten Slok, chief economist at Apollo Global Management, wrote in a Monday note titled “The US economy is in great shape.”

“We continue to worry more about upside risks to growth and inflation,” Slok said.

Ultimately, Trump’s economic success may not hinge on price drops. Instead, Trump should be rooting for a continuation of a streak that began under President Joe Biden: real wage growth.

Paychecks have consistently been outpacing prices. If that trend continues under Trump, many more Americans will catch up to the higher level of prices and feel better about the cost of living.