What Happened
As President Donald Trump begins his second term in office, he inherits a U.S. economy in strong shape, with low unemployment, steady wage growth, and robust stock market performance. However, his aggressive trade policies and ambitious economic plans introduce uncertainty that could impact inflation and long-term growth.
Why It’s Important
The U.S. economy ended 2024 with an unemployment rate of just 4.1%, among the lowest for any incoming president in history. Inflation has cooled but remains a key concern, with risks that Trump’s proposed tariffs and regulatory rollbacks could reignite price pressures. Investors and economists are closely watching how Trump’s policies will shape the economy in 2025 and beyond.
Key Economic Indicators
- Unemployment Rate: 4.1%, one of the lowest for an incoming president.
- Inflation: Moderating but still above the Federal Reserve’s 2% target.
- Stock Market: Record highs fueled by Big Tech and AI stock gains.
- Wage Growth: Outpacing inflation, improving real incomes for workers.
Major Questions Loom
Despite the strong economic footing, uncertainty is high due to Trump’s sweeping policy agenda:
- Trade Policy: Trump has vowed to impose massive tariffs, including a proposed 25% tariff on Canada and Mexico starting February 1, though he has not signed an executive order to enforce them.
- Inflation Risks: Economists warn that tariffs could raise consumer prices, and mass deportations could create labor shortages in key industries like agriculture and construction.
- Regulatory Rollbacks: Trump’s push to slash regulations may benefit businesses but could also introduce volatility in financial markets.
The Cost of Living Challenge
While wages are growing, Americans are still struggling with the higher cost of living. The typical household is spending about $1,213 more per month compared to January 2021, according to Moody’s Analytics. Trump has promised to bring prices down, but economists argue that widespread price declines are unlikely without a major economic downturn.
What’s Next
The early days of Trump’s second term will set the tone for economic policy. His administration’s actions on trade, taxes, and deregulation will determine whether the economy continues to grow or faces new inflationary pressures. Investors are also watching whether Trump will continue the wage growth momentum started under President Joe Biden, which has helped offset rising living costs.
