Donald Trump is preparing to re-enter the White House and there’s an amazing gift waiting for him: one of the strongest US economies in history.
With low unemployment, robust GDP growth, and easing inflation, Trump is stepping into conditions few presidents have enjoyed.
But this economic backdrop is not perfect. A record high federal debt, high gas prices and mortgages and worried consumers are some of the risks also waiting for him.
Ultimately, Trump’s policies will determine whether this inheritance is nurtured or squandered.
What Trump is walking into
Donald Trump inherits an economy characterized by key metrics that indicate exceptional strength.
Unemployment stands at 4.1%, which is the lowest transition rate since George Bush took office in 2001.
This low rate is accompanied by a strong labor market, with private-sector job growth maintaining healthy momentum.
The prime-age employment-to-population ratio, which measures the share of individuals aged 25 to 54 with jobs, reached 80.5% in late 2024, the highest level seen since 2000.
The US labor market has rebounded more robustly than most other advanced economies following the COVID-19 pandemic.
Economic growth also paints an encouraging picture. Real GDP grew by 2.4% in 2024, outpacing the 2021 growth rate at the start of Biden’s term and even the economy’s performance during Trump’s initial inauguration in 2017.
Notably, the US economy is now operating above many estimates of its potential.
Inflation, which reached a peak of 9.1% in mid-2022, has moderated to 2.7%, approaching the Federal Reserve’s target of 2%. This stabilization has provided some relief to consumers and policymakers alike.
The financial markets are also reflecting a period of prosperity and resilience.
According to figures by the Economic Policy Institute, the stock market posted an inflation-adjusted growth of 28.8% in 2024.
This was comfortably the strongest pre-transition market performance in decades, with the average being 6.5%.
The hidden cracks in US economy
While the economy looks strong on paper, underlying vulnerabilities could complicate Trump’s efforts to sustain growth.
As of January 2025, the US debt stands at a record $36.2 trillion.
This surge is partly due to fiscal stimulus under both Trump’s first term and Biden’s administration, including the $1.9 trillion American Rescue Plan and subsequent spending on infrastructure and green energy initiatives.
Historically, deficits of this magnitude have been justified during recessions or crises. In contrast, today’s deficit persists despite robust GDP growth and low unemployment, which puts long-term fiscal sustainability in question.
Additionally, gas prices averaged $3.50 per gallon in 2024, the highest for an inauguration in US history.
Mortgage rates stand at 6.9%, significantly higher than during the 2010s. This combination has eroded housing affordability to near-record lows, squeezing middle-class households.
Despite wage growth outpacing inflation, wealth inequality remains entrenched.
During Biden’s term, the richest Americans saw their net worth soar, while many middle- and lower-income families struggled with rising costs for essentials like housing, healthcare, and education.
Finally, consumer sentiment remains tepid.
The University of Michigan’s consumer confidence index was 73.2 in December 2024, far below historical norms.
Americans still feel the sting of inflation and rising costs, even as wage growth outpaces price increases.
Trump’s policy toolbox
Trump’s second term promises a bold economic agenda, but his proposed policies carry significant risks. His plans to implement tariffs, mass deportations, and tax cuts could potentially undermine the advantages he inherits.
Raising tariffs, for example, may generate additional revenue for the government in the short term, but it risks increasing consumer prices and reducing household purchasing power.
Tariffs could also strain international trade relationships, impacting businesses that rely on global supply chains. While the inflationary impact of tariffs may be limited to a one-time adjustment, they could dampen consumer confidence and spending.
Deportations, another key policy proposal, could reduce the labor supply, leading to higher wage growth but also fueling inflationary pressures.
Labor shortages may hinder productivity and economic efficiency, creating broader challenges for industries reliant on immigrant workers.
This policy also runs counter to the goal of price stability, which is critical in maintaining the economy’s current trajectory.
Finally, extending the 2017 Tax Cuts and Jobs Act poses fiscal risks.
While the policy may align with Trump’s political priorities, it offers limited economic benefits in the current environment.
With the economy already performing strongly and interest rates high, additional tax cuts could exacerbate the federal deficit and increase borrowing costs.
These outcomes could erode the fiscal flexibility needed to address future challenges.
Economists caution that these policy moves, if pursued aggressively, could introduce uncertainty into an otherwise stable economic environment.
Missteps could disrupt the momentum of growth, job creation, and inflation moderation that Trump inherits.
Donald Trump enters office with an enviable economic inheritance, but this advantage comes with high expectations.
The economy is strong, but far from solid. Markets are at their all-time highs which makes them vulnerable to volatility and unexpected news. Investors and consumers are still worried about the future outlook.
Trump’s success will depend on his ability to avoid policy overreach and focus on sustainable growth.
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