What Lies Ahead for the U.S. Economy with Trump’s New Policies?

Crowd holding signs supporting Trump at rally.

The U.S. economy is expected to see substantial shifts as President-elect Donald Trump prepares for his upcoming term, with GDP forecasts and tax policy changes at the forefront of economic discussions.

At a Glance

NABE forecasts GDP in 2024 to grow by 2.7%.
Potential interest rate cuts and stable risks support economic optimism.
Extension of the Tax Cuts and Jobs Act is seen as crucial for economic stability.
Changes to immigration and trade policies could impact future growth and inflation.

Economic Projections Under Trump

Economists are projecting a favorable economic outlook for the United States as President-elect Donald Trump gears up for another term. The National Association of Business Economics (NABE) anticipates a 2.7% increase in GDP, with key contributors being controlled inflation rates, a risk-neutral environment, and potential Federal Reserve rate cuts. These elements combine to create a supportive foundation for economic growth.

The extension of the 2017 Tax Cuts and Jobs Act, set to expire in 2025, is vital. Economic experts highlight the necessity of continuing these tax cuts to prevent abrupt tax increases that could stifle economic activity. Specific policy changes being anticipated include reducing corporate tax rates and addressing immigration and trade policies that could influence economic dynamics from 2025 and onwards. These policy adjustments are particularly significant as they are expected to influence economic performance and inflation in the years to come.

Optimism has been high that Trump’s pro-growth promises, built around tax cuts and deregulation, will unlock another round of gains in an already flourishing economy. https://t.co/pny0bKTn8v

— Bloomberg Economics (@economics) November 10, 2024

Policy Impacts and Market Reactions

Trump’s re-election and possible Republican Congress dominance might lead to major policy transformations. Analysts predict such changes could stimulate business investments and spending in the short term due to relaxed financial conditions and deregulation. However, despite these positive projections, uncertainty surrounding policy implementations could deter private sector activity.

Looking at the financial markets post-election, there were initial expectations of stronger growth and increased interest rates, although some of those gains were subsequently reversed. Additionally, potential tax policy alterations, including the continuation of the 2017 Tax Cuts and Jobs Act, are under consideration. Extending these tax cuts is seen not only as pro-growth but also crucial for economic confidence moving forward.

From tariffs to tax cuts, Trump promises he'll revitalize the U.S. economy. Economist @oren_cass, who runs the conservative think tank @AmerCompass, joins @WalterIsaacson to discuss changing Republican fiscal policies and what he thinks of Trump's plans. https://t.co/EbPalS8Aj2

— Amanpour and Company (@AmanpourCoPBS) November 22, 2024

Future Economic Trends and Predictions

While changes in immigration, tax, and trade policies are on the horizon, they are expected to have varying impacts on the U.S. economy and inflation outlook beyond 2025. On one hand, immigration restrictions could slow labor force growth, adding to inflationary stress. Meanwhile, policy amendments, particularly with trade and tariffs, could have mixed effects on GDP and inflation pressures.

As policy changes unfold, economists maintain an optimistic overall forecast, noting that their projections for economic growth in 2024 and 2025 have improved. “NABE panelists’ forecasts for economic growth in 2024 and 2025 are higher than their previous projections,” emphasized Emily Kolinski Morris from NABE.

With the Federal Reserve potentially reducing interest rates gradually, the economic dynamics in the United States appear set for a period of adjustment and strategic recalibration. A key point of discussion will be the long-term effects of the Tax Cuts and Jobs Act, with many advocating for its extension to maintain a robust economic environment.