If there was one thing President Donald Trump was supposed to represent to many voters, it was the prospect of an upturn in their economic fortunes.
Yet, less than three months into his second administration, Americans are being asked to reset their expectations about the trajectory of the U.S. economy — in the near term and beyond.
Rather than reignite the economy, Trump’s unusual and unprecedented economic policies, like tariffs, tax cuts and spending reductions, are raising the specter of not only a recession, but also stagflation: sustained price increases, but no growth to go along with it.
It would be the worst of both worlds: Consumers get hit with higher costs alongside declining employment and wages.
Investors, not to mention electoral pollsters who were active in the 1970s, remain scarred by the stagflation that took root during that decade. It caused both inflation and unemployment to average around 6% for the decade, setting the stage for a period of economic “malaise” in America that helped cost Democratic President Jimmy Carter a second term in the White House.
The lackluster economic conditions lasted well into the first term of Carter’s opponent, Ronald Reagan. Indeed, at least one commentator is already positing an analogy between Reagan and Trump as two presidents who inherited flagging economies.
Charles Gasparino, a business columnist for the New York Post and a Fox News contributor, expressed the argument recently.
“Ignore the puke,” he wrote Monday, referring to the significant market sell-off over the past week or so.
Fiscal and monetary stimulus, he said, has become like “heroin” to the economy, Gasparino said. He compared the adjustment the United States is undergoing to the early years of Reagan’s presidency.
“The markets hated the uncertainty,” he said. “The economy experienced plenty of pain during a three-year transition when the Reaganistas cut taxes and de-emphasized government. As history shows, it all paid off for American workers and even for the fat cats in the stock market.”
It’s an ideological argument and an emotional appeal that many mainstream economists say fails to stand up to logic or fundamentals.
In a note to clients Sunday, analysts with the Evercore investment firm raised the prospect that the United States could enter a stagflationary period as a result of Trump’s tariff policy and the actions of Elon Musk’s Department of Government Efficiency. That outcome is still not a foregone conclusion, the analysts said.
Others are more certain of negative consequences. Neil Dutta, head of U.S. economics at the Renaissance Macroeconomics research group and consultancy, said in a note that in addition to the unwinding of the post-electoral “Trump bump” for the economy, pre-existing negative economic trends are still playing out.
Notably, he said, the jobs market continues to soften, with the share of people working part-time for economic reasons — meaning those who want more work but cannot find it — rising to a post-pandemic high of 8%, while a measure of typical workweek hours fell to the lowest level since June 2010.
“In short, there is more slack in the jobs market and that will weigh on wages and salaries,” Dutta wrote.
On Wednesday, the Bureau of Labor Statistics will report inflation data for February. Yet the Federal Reserve is already predicting the pace of price growth to remain elevated.
“The path to sustainably returning inflation to our target has been bumpy, and we expect that to continue,” Fed Chair Jerome Powell said last week.
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