President Joe Biden is passing a strong economy on to his successor, Donald Trump, making it possibly the smoothest presidential transition since George W. Bush’s term began in 2001. Unemployment rates are low, COVID-era disruptions are mostly resolved, and consumers have the spending power to sustain economic growth. According to the Yahoo Finance Bidenomics Report Card, the Biden administration’s handling of the economy earns an A- grade, based on an analysis of economic metrics for first-term presidents dating back to Jimmy Carter in the 1970s. The outlook is optimistic, with very few economists predicting a recession in the next year.
However, there are challenges on the horizon for Trump as he takes office in 2025. These include concerns about a potential resurgence of inflation, unexpectedly high interest rates, and a substantial national debt that is starting to impact financial markets. Trump will also need to address a slowing economy, with GDP growth falling short of the 3% target set by his incoming Treasury secretary, Scott Bessent.
Although inflation has decreased from its peak of 9% in 2022 to 2.9%, the Federal Reserve aims for a 2% inflation rate, which remains a challenge. Rising long-term interest rates, driven in part by the growing national debt of $36 trillion, are also a worry for investors. The increased Treasury issuances are raising concerns about the sustainability of current borrowing levels, leading to higher rates to mitigate perceived risks.
Trump’s policies, such as imposing tariffs on imports and deporting migrant workers, could further impact inflation and interest rates. The uncertainty surrounding these actions is contributing to the upward pressure on rates, with investors closely watching for clarity on Trump’s approach to tariffs and deficit reduction to guide their decisions.
In conclusion, Trump will need to navigate these economic challenges carefully to maintain the momentum of the current strong economy handed to him by President Biden.
He will continue to encounter significant structural obstacles that are likely to hamper future economic growth. The United States is undergoing an aging demographic shift, leading to a less vibrant economy as fewer young workers must support a growing number of retirees. This demographic trend is a key factor behind the Congressional Budget Office’s projection that real annual GDP growth will decline from an average of 2.5% over the past decade to approximately 1.9% in the next ten years.
Renowned economist Paul Krugman emphasizes that economic growth stems from two primary sources: expansion of the labor force and enhancements in productivity. However, the growth of the US labor force is slowing due to demographic shifts. While increased immigration could potentially boost the labor force, President Trump advocates for reduced immigration, further complicating the situation.
As a result, the focus turns to productivity gains as a potential solution. Krugman aptly notes, “Nobody knows how to make a big positive difference.” President Trump and his Republican allies maintain that tax cuts and deregulation will invigorate the economy, despite lacking historical evidence to support this claim. In reality, periods of higher taxation have often coincided with greater labor productivity, while lower taxation has correlated with diminished productivity. Presently, labor productivity in the US is moderate.
To achieve an economic improvement over his predecessor, President Trump may need to reconsider his protectionist policies, address the national debt, and explore alternative methods beyond tax reductions to enhance the productivity of American workers. The transition from Bidenomics to Trumponomics has occurred, yet the persistent challenges remain unaddressed.
Rick Newman, a senior columnist for Yahoo Finance, delves into these economic complexities. For more insights into the intersection of politics, business, and finance that influence stock market trends, follow his analysis on Bluesky and X: @rickjnewman. Stay informed on the latest financial and business updates by visiting Yahoo Finance for coverage on policies shaping tomorrow’s economic landscape.
