The Oval Office may be a familiar place to the newly reinaugurated President Donald Trump, but he inherited an economy that couldn’t be more different than the one he encountered the last time he entered the White House.
Although former President Barack Obama presided over the slowest economic recovery in the post-war era, his decision not to overshoot the size of his early administration stimulus package in the aftermath of the Great Recession, and a Republican majority House two years later forcing spending restraints, meant Trump entered office with low inflation and interest rates. Trump then added a secret sauce to the economy to unleash consistent economic growth and job gains.
Trump did so during his first term, from 2017 to 2021, without unleashing higher interest rates or inflation. Eight years ago, he oversaw industry deregulation, first through the executive branch and then with Congress. The first Trump administration also simplified the tax code and reduced the corporate tax rate to the European average, through his 2017 Tax Cuts and Jobs Act.
Before the COVID-19 pandemic, Trump arguably achieved the best economy in generations. Americans back then reported the highest levels of confidence in their economic prospects during Gallup’s half-century of polling this metric.
By nearly every other measure, the economy of 2025 is a different beast.
The only silver lining is our persistently low unemployment rate, and even that is a mixed bag. Thanks to the dramatic demographic transition of boomers aging into taxpayer-funded retirement with fewer young people graduating into the workforce, the economy has maintained effectively full employment. Even after the Federal Reserve engaged in its most rapid monetary tightening in 40 years.
The unemployment rate dipped from 4.2% to 4.1% in December, close to our half-century low, the final full month of former President Joe Biden’s four-year White House run. Economic growth has also recovered since the stagflationary contraction of 2022 to persistently but consistently fewer than 3%.
The rest of the economy is unambiguously suboptimal.
Despite Biden claiming victory over the Fed’s efforts to fight inflation, consumer price index inflation rose to 2.9% in the year ending this past December, up from the September nadir of 2.4%. Core CPI, which excludes the volatile categories of food and energy, has plateaued even higher at 3.2% on an annualized basis. The Fed’s preferred measure of core personal consumption expenditures inflation has risen to more than 2.8%, its highest level in eight months.
Predictably, the Fed’s premature decision to slash the federal funds rate by 75 basis points has not translated to any real relief in interest rates. The average 30-year fixed mortgage rate, which bottomed out near 6% when the Fed announced its first rate cut in September, has soared back up to north of 7%. The 10-year Treasury yield has similarly skyrocketed from a September nadir of 3.6% to more than 4.8% earlier this month.
Tellingly, bond markets slightly rebounded as Scott Bessent testified before a Senate committee during his confirmation hearing as treasury secretary nominee. The 10-year yield slightly fell and stayed below 4.6%. The rally indicated a sigh of relief from investors who trust Bessent to fix the mess left behind not just by Bidenomics in general but also by his now-former treasury secretary, Janet Yellen.
Bessent inherits Yellen’s erroneous decision to double the share of government borrowing financed by short-term securities to nearly a third of our national debt. When that debt matures into an environment of much more elevated interest rates than Yellen enjoyed when she decided not to lock in long-term lows, Bessent will be responsible for financing a federal debt that has similarly exploded.
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On top of all of this is the ticking time bomb of rising taxes for most Americans unless rate cuts and other provisions of the 2017 TCJA are extended. The individual and estate tax provisions of the TCJA expire by the end of this year, and absent congressional action to extend the bill — plus Trump’s signature on it — 62% of Americans would begin the 2026 midterm election year with a tax hike.
Trump has already proven his ability to unleash economic growth while protecting the strength of the greenback’s status as the world’s reserve currency. Voters made clear in 2024 that it was the economy, more than any other matter, that allowed Trump to resurrect his political career. However, he is inheriting a much different economic beast than he did in 2017 and has no time to waste in slaying it.
This article was originally published at www.washingtonexaminer.com
