How Trump's ambitious economic agenda might unfold
Three things to watch in 2025.
Trump seems determined to accomplish more in his first year than his entire first term. We see his bold agenda coming in three waves.
From Inauguration Day into Memorial Day, we expect Trump to address immigration by securing the border, deporting convicted criminals who had entered the country illegally, increasing legal immigration and creating a path to citizenship for non-documented, yet gainfully employed people. His threat of tariffs has alarmed many, but it is likely a negotiating tactic. The US accounts for 5% of the world’s population but 25% of global GDP. It would be economic suicide for nations to look elsewhere to avoid tariffs. He has talked of a “peace through strength” approach to foreign policy, including beefing up defense spending, requiring allies to contribute more and increasing energy production. Slashing government expenses and increasing energy exports to allies are also on the table.
From Labor Day into Thanksgiving, we anticipate the administration to extend, and make permanent, corporate and individual taxes before his 2017 code expires. That law slashed business rates from the highest in the developed world (36%) down to the middle of the pack (21%). According to some estimates, this change repatriated $2.5 trillion in assets that went to increased capex, hiring more workers and better compensation. Many companies repurchased shares and increased dividends. The former boosted GDP, while the latter benefited the financial markets. Lowering personal tax rates should keep consumer confidence rolling.
From Thanksgiving into year-end, we expect Trump to prepare for the Fed’s leadership transition, as Chair Powell’s term expires in May of 2026. We doubt the president will attempt to push him out before then. But considering the policy missteps the Fed made under Powell, Trump is sure to nominate a new head. That could be Kevin Warsh, who served on the National Economic Council and on the Fed’s Board of Governors under President George W. Bush. To be sure, the central bank has decreased inflation without triggering a recession so far. But the fight would likely have been easier had it hiked rates when inflation began to soar in 2021. Powell might have made another mistake in late 2024 by advocating for 100 basis-points worth of cuts even though inflation had stalled above the Fed target.