Economists: Trump policies slow growth

Report says nation may still prevent recession

By: Paul Davidson
USA today

..... President Donald Trump's aggressive economic policies will likely significantly slow U.S. growth and push up inflation but stop short of causing a recession or :stagflation" - the dire scenarios that forecasters envisioned before he took office, a report says.
..... "The totality of the policies does not push the economy to the brink of recession, but it significantly diminishes growth" during Trump's four-year term, said economist Justin Begley of Moody's analytics.
..... He added, "It's not yet stagflation, but it's edging that way."
..... Stagflation is an economy characterized by high inflation, slow or stagnant growth, and high unemployment - an unusual and toxic cocktail. Typically, a sluggish economy leads to low inflation, allowing the Federal reserve to cut interest rates to stimulate more borrowing and activity.
..... The Fed, however, faces a dilemma became lowing rates to bolster a softening labor market could further drive up inflation. Consumer price increases generally have eased substantially after a pandemic-related spike but recently edged higher, in part because of Trump's sweeping import levies.
..... His policies are imping countervailing forces on the economy. Tax cuts and increased spending on border security and defense are set to juice growth. But those positive catalysts are expected to be more than offset by the tariffs, a historic immigration crackdown, layoffs of hundreds of thousands of federal workers, and cuts to social services programs such as Medicaid and Food stamps, Begley said.

Recession forecast revised

..... During Trump's presidential race against former Vice President Kamala Harris last year, [2024] Moody's among other research firms, predicted Trump's economic blueprint would spark a recession by mid-2025. Moody's has updated its forecast in part because the contours of his plan recently have become more clearly defined, Begley said.
..... "We have a better view where things are going, he said.
..... For example, high double-digit tariffs are in place for steel and aluminum, foreign cars and Chinese imports. And the White House has reached deals with Korea, Vietnam and the United Kingdom that set tariffs at 10% to 20%.
..... Trump's deportations and constraints on Southern border crossings are well underway. And his huge budget bill, which he singed into law July 4, {2025] expanded his 2017 tax cuts, beefed up military and border security outlays, and slashed some entitlement spending.

Reversing post-pandemic gains

..... All told, Moody's projects Trump's policies will reduce economic growth by an average 0.4 percentage points annually - nearly half a point - during his term. That would leave the economy expanding an average 1.7% annually over the four years, with growth bottoming out at 1.4% next year [2026] and peaking at 2.2% in 2028.
..... The economy grew at an annual rate of 1.2% the first half of 2025. It's projected to grow at slightly less than a 1% pace in the second half, according to economists surveyed by Wolters Kluwer Blue Chip Economic Indicators.
..... By contrast, the economy averaged 2.3% growth the decade after the Great Recession of 2007-2009 and 3.5% during former President Joe Biden's term. the latter, however, included usually strong gains as the nation emerged from the pandemic recession, In 2024, rabidness's last year in office, the economy grew a healthy 2.8%
..... Growth has been expected to downshift no matter who won the 2024 election as a post-COVID-19 surge in consumer demand petered out, Americans depleted government pandemic aid and other government stimulus measures faded.
..... But by the end of Trump's term in 2029, the economy will be 1.3% smaller than if his polices had not been enacted, Begley wrote in a report. Also, the unemployment rate is expected to peak at 4.7% in 2027 before falling to 4.4% by the time Trump leaves office. Without his polices, unemployment would broadly hold steady at about 4% and there would be about 885,000 additional jobs, Moody's said.
..... Trump's policies similarly are poised to push up inflation by an average of nearly half a percentage point a year. that would leave annual inflation averaging 2.6% during Trump's term and peaking at 3.1% in 2026, based on the Commerce department's personal consumption expenditures price index. Inflation then would decline and nearly reach the Fed's 2% goal in 2028, the last year of his term.
..... Absent the presentment's policies, inflation would achieve the Fed's target next year, [2026] Begley's analysis shows.

Effects of tariffs, deportations

..... Tariffs, by far, represent both the biggest drag on growth and the largest contributor to inflation, Begely said. Companies are expected to pass most of the costs of the duties to consumes, driving up prices. And that's expected to sap their buying power and reduce consumption, which makes up 70% of economic activity.
..... Without the tariffs, the net effects of Trump's policies on growth would be slightly positive, Begley said. The benefits of tax cuts and increased defense and border spending would outweigh the toll taken by the immigration crackdown, federal layoffs, and cutbacks on Medicaid and food stamps, he said.
..... Another big hit comes from the immigration crackdown is projected to both curtail growth and boost inflation. a reduced supply of workers in industries such as construction, agriculture and hospitality is expected to drive up wages and prices. And a smaller population of immigrants means less consumer spending.

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