President Donald Trump has assumed office for his second term in January 2025 inheriting an economy that is, by most measures, in solid shape.
The unemployment rate ended 2024 at 4.1%, one of the lowest rates for an incoming president in modern history.
This marks a significant departure from the economic crisis that President Barack Obama faced in 2009.
Despite persistent frustrations over the cost of living and lingering risks of inflation resurgence, the US economy is in strong shape.
The labor market is experiencing a historic streak of uninterrupted growth, with wage increases outpacing price rises and overall economic performance continuing to surpass expectations.
“The president is inheriting a very healthy economy,” said David Kelly, chief global strategist at JPMorgan Asset Management.
Yet, questions remain about whether Trump’s ambitious agenda could disrupt this stability, CNN highlights.
Major challenges loom over Trump’s agenda
While Trump starts his second term with a robust economy, his sweeping plans have injected a significant degree of uncertainty.
On his first day back in the White House, Trump enacted executive actions addressing energy, immigration, and federal operations, signalling an aggressive approach to economic policy.
Key elements of his agenda include:
Massive tariffs: Trump has promised to impose 25% tariffs on Canada and Mexico, effective February 1, though the exact details remain unclear.
Other nations could face tariffs later, with retaliation expected from key trading partners.
Regulatory changes: A commitment to slashing red tape aims to boost business activity, but the rapid pace of these changes could create confusion.
Tax incentives: Promised tax breaks for businesses and individuals are designed to stimulate growth, but the long-term fiscal implications are uncertain.
“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.
The cost of living: A persistent challenge
Trump faces mounting pressure to address the rising cost of living, which remains a primary concern for many Americans.
According to Moody’s Analytics, the typical US household spends $1,213 more per month on basic goods and services than in January 2021.
While wages have outpaced inflation on average, many households continue to struggle.
Trump has promised to bring down prices, but many economists are skeptical this can be achieved on a broad scale—unless the economy takes a severe downturn.
While consumers welcome lower prices, outright deflation can pose significant risks and is notoriously challenging to reverse.
“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.
Additionally, elements of Trump’s agenda, such as tariffs and immigration policies, could further exacerbate inflationary pressures.
When it comes to tariffs, as seen in past instances, businesses often pass higher import costs on to consumers.
On the other hand, mass deportations could leave key industries, such as construction and agriculture, short-staffed, driving up costs.
Risks of overheating the economy
Despite easing inflation, some experts fear that Trump’s policies could overheat the already strong economy.
Although the inflation rate has declined, it remains above the Federal Reserve’s target.
Meanwhile, markets continue to break records, driven by surging interest in 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.
Trump’s economic legacy may hinge on whether real wage growth continues—a trend that began under President Joe Biden.
Rising paychecks have helped many Americans catch up with higher prices, improving their standard of living.
If Trump’s policies can sustain this trajectory without igniting inflation, they could reinforce economic stability.
However, achieving this balance will require navigating significant uncertainties around trade, fiscal policy, and global market dynamics.
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