Predicting how White House policy is going to impact the American economy is always fraught with uncertainty. Donald J. Trump’s return to the White House has taken the doubt up a notch.
Mr. Trump has proposed or hinted at a range of policies — including drastically higher tariffs, mass deportations, deregulation and a fraught relationship with the Federal Reserve as it sets interest rates — that could effect the economy in complex ways.
“There are two multiplicative sources of uncertainty: One, of course, is what they’re going to do,” said Michael Feroli, the chief U.S. economist at J.P. Morgan. “The other is: Even if you know what they’re going to do, what is it going to mean for the economy?”
What forecasters do know is that America’s economy is solid heading into 2025, with low unemployment, solid wage ?g=1BpJK” rel=”noopener noreferrer” target=”_blank”>gains, gradually declining Federal Reserve interest rates, and inflation that has been slowly returning to a normal pace after years of rapid price increases. Factory construction took off under the Biden administration, and those facilities will be slowly opening their doors in the coming years.
But what comes next for growth and for inflation is unclear — especially because when it comes to huge issues like whether or not to assert more control over the Federal Reserve, Mr. Trump is getting different advice from different people in his orbit. Here are some of the crucial wild cards.
Tariffs: Likely Inflationary. How Much Is Unclear.
If economists agree about one thing regarding Mr. Trump’s policies, it is that his tariff proposals could boost prices for consumers and lift inflation. But the range of estimates over how much is wide.
When Mr. Trump imposed tariffs during his first term, they pushed up prices for consumers, but only slightly.
But what he is promising now could be more sweeping. Mr. Trump has floated a variety of plans this time, but they have often included across-the-board tariffs and levies of 60 percent or more on goods from China.
“It’s not at all clear that this is going to be anything like it was the last time around,” said Omair Sharif, founder of Inflation Insights.
The tariffs Mr. Trump put in effect in 2018 do not offer a good economic precedent for how such a large tariff on goods coming from China in particular might play out, Mr. Sharif said. The earlier rounds heavily affected imports like aluminum, steel and other economic inputs, rather than final products.
“These are not things you go out and buy at Home Depot on the weekend,” he said. The new ones, by contrast, would hit things like T-shirts and tennis shoes, so they could feed much more directly into consumer price inflation.
But there are a lot of moving parts when it comes to tariffs. How would other countries react? Would currencies adjust, blunting the impact? And would the Fed react by lifting interest rates if higher tariffs did spur inflation?
Fed staff suggested back in 2018 that the central bank could hold steady in the face of price increases coming from tariffs, assuming that consumers and investors expected inflation to remain fairly steady over time. But Jerome H. Powell, the Fed chair, acknowledged last week that this time, “we’re in a different situation.”
Six years ago, inflation had been slow for more than a decade, so a small bump to prices barely registered. This time, inflation has recently been rapid, which could change how price increases filter through the economy.
“The answer isn’t obvious until we see actual policies — and even then it’s not obvious,” Mr. Powell said.
Deportations: Could Slow Growth, but Details Matter.
Tariffs are not the only thing that economists are struggling to figure out. It is also unclear what immigration policy might look like under a Trump administration, making it difficult to model the possible economic impact.
Mr. Trump has repeatedly promised the biggest deportation in American history while on the campaign trail, and he has at times hinted at high-skill immigration reform. During an interview on the “All In” podcast, he said “what I will do is, you graduate from a college, I think you should get, automatically, as part of your diploma, a green card to be able to stay in this country.”
But reforming the legal immigration system for highly educated workers would require Congress’s participation, and the campaign barely talked about such plans.
And when it comes to lower-skill immigration, while there are things the administration can do unilaterally to start deportations, there’s a huge range of estimates around how many people might be successfully removed. It’s hard to round people up, cases might get caught up in the court system and newcomers may replace recent deportees.
Economists at Goldman Sachs have estimated that a Trump administration might expel anywhere from 300,000 to 2.1 million people in 2025. The low end is based on removal trends from Mr. Trump’s earlier term in office, and the higher end is based on deportation trends from the Eisenhower administration in the 1950s, which Mr. Trump has suggested he would like to emulate.
Kent Smetters, the faculty director of the Penn Wharton Budget Model, which measures the fiscal impact of public policies, said he was assuming that the administration managed to deport a few hundred thousand people in its first year in office — which he said would have a relatively small effect on either growth or inflation in an economy the size of America’s.
“It’s not as big of an effect as you might think,” he said. “It’s not the same as if you were getting rid of all undocumented workers, and they’re going to fall far short of that, is my guess.”
Deregulation: Could Lower Gas Prices, but Not Drastically.
Mr. Trump promised to slash gas prices in half on the campaign trail through a combination of deregulation and geopolitical maneuvering. And industry analysts have said that he probably could move the needle a little bit — but because gas is a global market and companies have overhead costs, how much is unclear.
If Mr. Trump guts Environmental Protection Agency regulation, he might be able to get prices down by 15 to 25 percent at the pump, said Patrick De Haan, the head of petroleum analysis at GasBuddy, a company that tracks fuel prices. Between state taxes, labor, land costs and transport costs, it is difficult to drive gas much cheaper than that.
He thinks that it is most likely that prices will be in the “low- to mid- $3 range” next summer, on national average.
“The president doesn’t have a magic wand — he cannot compel U.S. oil producers to defy economics and produce at a loss,” Mr. De Haan said.
Complete Guesses: Animal Spirits and Fed Interest Rates.
Even if they are fuzzy, many investors and consumers seem to believe that Mr. Trump’s plans will provide an economic boost. Financial markets rallied after his win, buoyed by hopes for deregulation and tax cuts. Consumer sentiment among Republicans immediately surged.
There is a chance that such optimism itself — and the resolution of election uncertainty — could spur at least some people and businesses to spend and make investments, boosting growth.
Yet that introduces another big wild card: If the economy were to heat back up, the Fed could react to keep it from doing so too drastically. The White House has no direct control over how the Fed sets interest rates. And Fed policymakers have been trying to cool conditions down over the past two years by keeping borrowing costs high. The goal was to tap the brakes on the economy in order to wrestle America’s recent burst of inflation under control.
Because price increases have been fading steadily, Fed officials have now begun to cut interest rates. But they have yet to decide how much they will ultimately lower them.
Officials could stop cutting earlier if the economy seems likely to accelerate because of tax cuts or other fiscal policies, since stronger growth could help to keep prices climbing more quickly than usual.
And Mr. Trump would very likely be unhappy if interest rates were to stay high: He regularly criticized the Fed for not slashing them during his first term, and he has already been promising a return to lower rates during his second.
The potential crash course raises the question of whether Mr. Trump would try to assert more control over America’s independent central bank.
Mr. Trump seemed to conclude during his first term that the president did not have the legal power to fire the Fed chair. But he subsequently suggested that he might try to demote Mr. Powell from his leadership position.
More recently, Mr. Trump said during the 2024 campaign that he would not try to fire Mr. Powell — but he made that statement somewhat conditional. He told Businessweek that he would keep Mr. Powell on, “especially if I thought he was doing the right thing.”
People in Mr. Trump’s policy circles have told him that he should not attempt to remove or demote the Fed president because doing so would roil markets, according to a person familiar with the matter.
And Mr. Powell’s term expires in 2026 anyway. Mr. Powell himself has said he does not think it would be legal for Mr. Trump to fire or demote him. If Mr. Trump tried, Mr. Powell could fight the move, and the issue could get caught up in the courts.
But some in Mr. Trump’s circles are far less protective of the Fed. John Yoo, a conservative legal scholar, has publicly argued that Mr. Trump can fire the Fed chair, and that Mr. Powell should resign. And Elon Musk, a close adviser to Mr. Trump, recently retweeted a post on X suggesting that the Fed should be under the direction of the president with a “100” emoji.
If Mr. Trump were to try to influence the Fed — and especially if he were to succeed — there is concern among many economists that it could pave the way for out-of-control inflation.
“The concern is that the president would press the Fed to set interest rates lower than otherwise to spur stronger economic growth despite the likelihood of driving inflation higher,” economists at the Peterson Institute for International Economics wrote in one recent report.
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