Predicting how White House policy is going to affect the American economy is always fraught with uncertainty. Donald J. Trump’s return to the White House has taken the doubt up a notch.
Mr. Trump has proposed or hinted at a range of policies — including drastically higher tariffs, mass deportations, deregulation and a fraught relationship with the Federal Reserve as it sets interest rates — that could shape the economy in complex ways.
“There are two multiplicative sources of uncertainty: One, of course, is what they’re going to do,” said Michael Feroli, the chief U.S. economist at J.P. Morgan. “The other is: Even if you know what they’re going to do, what is it going to mean for the economy?”
What forecasters do know is that America’s economy is solid heading into 2025, with low unemployment, solid wage gains, gradually declining Federal Reserve interest rates, and inflation that has been slowly returning to a normal pace after years of rapid price increases. Factory construction took off under the Biden administration, and those facilities will be slowly opening their doors in the coming years.
But what comes next for growth and for inflation is unclear — especially because when it comes to huge issues like whether or not to assert more control over the Federal Reserve, Mr. Trump is getting different advice from different people in his orbit. Here are some of the crucial wild cards.Tariffs: Likely Inflationary. How Much Is Unclear.If economists agree about one thing regarding Mr. Trump’s policies, it is that his tariff proposals could boost prices for consumers and lift inflation. But the range of estimates over how much is wide.When Mr. Trump imposed tariffs during his first term, they pushed up prices for consumers, but only slightly.
But what he is promising now could be more sweeping. Mr. Trump has floated a variety of plans this time, but they have often included across-the-board tariffs and levies of 60 percent or more on goods from China.
It’s not at all clear that this is going to be anything like it was the last time around,” said Omair Sharif, founder of Inflation Insights.
The tariffs Mr. Trump put in effect in 2018 do not offer a good economic precedent for how such a large tariff on goods coming from China in particular might play out, Mr. Sharif said. The earlier rounds heavily affected imports like aluminum, steel and other economic inputs, rather than final products.
“These are not things you go out and buy at Home Depot on the weekend,” he said. The new ones, by contrast, would hit things like T-shirts and tennis shoes, so they could feed much more directly into consumer price inflation.
But there are a lot of moving parts when it comes to tariffs. How would other countries react? Would currencies adjust, blunting the impact? And would the Fed react by lifting interest rates if higher tariffs did spur inflation?
Fed staff suggested back in 2018 that the central bank could hold steady in the face of price increases coming from tariffs, assuming that consumers and investors expected inflation to remain fairly steady over time. But Jerome H. Powell, the Fed chair, acknowledged last week that this time, “we’re in a different situation.”
Six years ago, inflation had been slow for more than a decade, so a small bump to prices barely registered. This time, inflation has recently been rapid, which could change how price increases filter through the economy.
“The answer isn’t obvious until we see actual policies — and even then it’s not obvious,” Mr. Powell said.
Economists at Goldman Sachs have estimated that a Trump administration might expel anywhere from 300,000 to 2.1 million people in 2025. The low end is based on removal trends from Mr. Trump’s earlier term in office, and the higher end is based on deportation trends from the Eisenhower administration in the 1950s, which Mr. Trump has suggested he would like to emulate.
Kent Smetters, the faculty director of the Penn Wharton Budget Model, which measures the fiscal impact of public policies, said he was assuming that the administration managed to deport a few hundred thousand people in its first year in office — which he said would have a relatively small effect on either growth or inflation in an economy the size of America’s.
“It’s not as big of an effect as you might think,” he said. “It’s not the same as if you were getting rid of all undocumented workers.
