New York
CNN
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When President Barack Obama took the oath of office in January 2009, unemployment was rising, markets were falling and families were losing their homes. He inherited an economic disaster.
President Donald Trump has been dealt a much stronger hand — even as he returns to the White House vowing to dramatically reshape the American economy through a slew of executive actions and sweeping legislation.
The unemployment rate closed the year 2024 at only 4.1%. The only future presidents to inherit a lower unemployment rate were President George W. Bush in January 2001 and President Richard Nixon in January 1969.
Although the cost of living remains a major disappointment and risks of rekindling inflation remain, the US economy is broadly in good shape as Trump takes office. The labor market is enjoying a historic period of uninterrupted growth, wage gains are outpacing price gains and overall growth continues to defy expectations.
“The president is inheriting a very healthy economy,” said David Kelly, chief global strategist at JPMorgan Asset Management.
One thing that could calm the US economy down a bit is the sheer amount of uncertainty being injected into the economy right now.
It is natural to have some uncertainty when there is a change in power in Washington, with the new party bringing its own ideas and philosophies.
Yet Trump is starting his second term with a bang, implementing a series of executive actions on his first day that cover everything from energy and immigration to the operation of the federal government.
Trump has promised that this is just the beginning, vowing to impose massive tariffs, cut an impressive amount of red tape and provide new tax breaks for businesses and individuals.
“Uncertainty is a tax on the economy,” JPMorgan’s Kelly said. “In football you might 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 can wait to make decisions and that tends to slow down the economy.”
Questions continue to swirl over Trump’s trade agenda.
Trump has vowed to impose massive tariffs on allies and rivals, but the exact timing and impact of those tariffs remain unclear. For example, he said on Monday that he would impose 25% tariffs on Canada and Mexico on February 1, but failed to sign an executive action directing those tariffs to take effect.
Elsewhere, Trump said his administration could impose blanket tariffs but was not yet ready to do so. How high will rates go and how long will they stay high? How will other countries respond? Some, like Canada, have vowed to retaliate with tariffs and other actions of their own.
During his inaugural address, Trump promised to “immediately begin overhauling our trading system to protect American workers and families” and even reiterated plans to set up an Internal Revenue Service to collect tariff revenue. (Although Trump said foreign countries would be taxed, the tariffs are paid by American importers, not foreign exporters. And they often pass the costs on to consumers in the form of higher prices.)
Trump knows that the biggest frustration for many Americans is the level of prices. People are spending far more on groceries, rent, car insurance and other items than before the pandemic.
The typical American household is spending about $1,213 more than in January 2021 for the same goods and services, according to Moody’s Analytics.
Wages, on average, have risen slightly more than that. However, this means that many people are coping with the higher cost of living and many others are falling behind.
Trump has said he will make prices fall, but many economists doubt that will happen broadly — unless the economy falls apart. While consumers want lower prices, outright deflation can be dangerous and difficult to escape.
“You cannot return prices to pre-pandemic levels. The only way to do that is not to have a recession, but a depression,” Kelly said. Trump acknowledged that recently, noting that once prices rise, it’s difficult to bring them back up again, but insisted he can do it.
However, many mainstream economists have expressed concern that elements of Trump’s agenda could be inflationary.
Businesses can pass the cost of tariffs on to consumers, as they have done in the past. And mass deportations could starve key workers in construction, agriculture and other industries.
As it is, there are concerns that the US economy is too hot — and that Trump’s agenda could overheat it. The inflation rate has fallen, but remains above the Federal Reserve’s target. Markets have broken record after record, fueled by a rush in Big Tech and artificial intelligence stocks.
“The bottom line is that the U.S. economy is entering 2025 on a strong footing,” Torsten Slok, chief economist at Apollo Global Management, wrote in a Monday note titled “The U.S. Economy Is in Great Shape.”
“We continue to be more concerned about upside risks to growth and inflation,” Slok said.
After all, Trump’s economic success may not depend on falling prices. Instead, Trump should be rooting for a continuation of a streak that began under President Joe Biden: real wage growth.
Paychecks have consistently exceeded prices. If this trend continues under Trump, many more Americans will reach the higher price point and feel better about the cost of living.
