'Performing Very, Very Well' – Why Trump's Economy May Not Need Big Reforms

Donald Trump’s aggressive economic agenda could face an unexpected challenge – an economy that may be too strong for dramatic intervention.

With unemployment at 4.1%, job growth surging by 256,000 in December and output expanding above trend, Trump’s plans for sweeping tariffs and immigration restrictions might risk disrupting rather than boosting economic performance, according to economists and Federal Reserve officials.

“Success for the Trump administration would be to do no harm to the exceptionally performing economy it is inheriting,” Mark Zandi, chief economist at Moody’s Analytics, told Reuters. The planned mix of tariffs, deportations and deficit-funded tax cuts “will do harm. How much depends on how aggressively these policies are pursued.”

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The economic landscape Trump faces in 2025 differs markedly from his first term. Inflation remains stubbornly above the Federal Reserve’s target, 30-year mortgage rates are above 7% and government borrowing costs have climbed. Treasury yields around 5% reflect market concerns about fiscal discipline.

Karen Dynan, a Harvard economist and former Obama administration official, points to immigration as a key factor in recent growth that restrictive policies could threaten. “If you believe the economic growth in excess of trend is from immigration, it is going to be hard to get numbers as large as we saw in the latter part of the Biden administration,” she said.

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Federal Reserve officials have begun factoring potential policy changes into their outlook. While Richmond Fed President Tom Barkin expects “more upside than downside in terms of growth,” the Fed’s staff has suggested slower growth and higher unemployment may result from expected trade and immigration policies.

Bond markets particularly signal caution. “There is still a concern inflation may not be beaten,” Fed Gov. Christopher Waller said recently, noting growing attention to fiscal deficits. “At some point, the markets are going to demand a premium.”

Despite Trump creating a Department of Government Efficiency (DOGE) to find savings, no plans address major deficit drivers like health and retirement benefits that both parties consider untouchable.

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