In West Palm Beach, Florida, the economic landscape that Donald Trump was set to inherit appears to be more precarious than anticipated, with critics arguing that the president-elect’s actions are contributing to the growing uncertainty.
The Dow Jones Industrial Average wrapped up Thursday with minimal change after experiencing ten consecutive days of losses. The Federal Reserve is now cautioning that inflation remains persistently high, making it hesitant to implement additional interest rate cuts as planned for the upcoming year.
Recently, Trump disrupted a bipartisan budget agreement, putting the federal government at risk of shutting down after midnight on Saturday. On Thursday, he endorsed a deal agreed upon with Republican lawmakers that both Democratic representatives and President Joe Biden found unacceptable. This proposal failed to garner the necessary two-thirds majority for House approval. This situation is compounded by Trump’s recent threats of tariffs, which, according to the Congressional Budget Office, could drive prices up and hinder economic growth without generating enough revenue to offset his intended tax cuts.
As Trump gears up for a second term, his quick move to unravel a bipartisan agreement serves as a test of whether the markets—often considered a reliable measure of his success—will tolerate his blend of unpredictability and theatrical political tactics.
In Trump’s narrative, the economy is already facing challenges. Inflation stands at 2.7%, along with widespread public discontent regarding Biden’s presidency.
“On day one, President Trump will begin the largest deregulatory agenda ever, reduce taxes, and accelerate the approval process for drilling and fracking to decrease energy costs and inflation for all Americans,” stated Karoline Leavitt, the spokesperson for the transition team.
This turbulence highlights that the economic growth experienced during Trump’s first term often came hand in hand with chaos. It remains uncertain if voters, already fatigued by rising prices, are prepared for further blame-shifting and uncertainty that has emerged in recent days.
On social media Wednesday, Trump declared his intention to “fight ‘till the end” unless the Democrats agreed to raise the debt ceiling as part of the short-term funding necessary to keep the government operational. He and his billionaire advisor, Elon Musk, also asserted their intention to support challengers in the 2026 primary elections against any Republican representative who opposed him.
His remarks on social media followed Musk’s denunciation of a bipartisan funding agreement crafted by House Speaker Mike Johnson, which aimed to keep the government running until March 14. A previous government shutdown that lasted five weeks at the end of 2018 resulted in an estimated $3 billion cut to economic growth, according to the CBO—though that amount is relatively symbolic.
By Thursday, Trump was touting on social media that a new Republican agreement was a “SUCCESS” for postponing the debt ceiling until January 30, 2027. He urged Democrats to “do what is best for the Country,” despite pushback from the White House and leading Democrats against this proposal.
Democrats quickly capitalized on the perceived disarray within the Republican Party. Representative Suzan DelBene from Washington stated, “Trump has made many promises, but he will need to account for the consequences of his actions on American families.” She further noted that it seemed Musk was now the one making decisions, as Republicans in Congress appeared unable to act independently, waiting instead for external direction.
Despite winning the election, Trump faces a public that remains skeptical. His ability to project authority and combat inflation was crucial for his electoral victory. While the stock market initially rose at the prospect of tax and regulatory reforms, Trump is starting his presidency from a more fragile position than Biden did four years ago.
Currently, 54% of U.S. adults view Trump unfavorably, as indicated by a recent survey showing that a slight majority have limited to no confidence in his capability to manage the White House and government expenses. In contrast, Biden commenced his term with approval ratings above 60%, which gradually declined as inflation worsened.
Trump now needs to maintain the momentum of an economy recovering from pandemic-induced disruptions while navigating a series of challenging policy decisions. A key point is the need to augment the government’s borrowing capacity, which he insists must be included in any short-term funding legislation to prevent a government shutdown. He is also expected to advocate for the extension of the 2017 tax cuts that are due to expire next year, all amidst an increasingly unsustainable budget deficit exacerbated by rising interest rates.
According to Douglas Holtz-Eakin, an economist and president of the American Action Forum, “The U.S. economy is in excellent shape — it shows a solid underlying growth trend.” He emphasized that the risks currently are primarily related to policy, with uncertainties including the Federal Reserve’s actions and the immediate need to address the debt ceiling and government funding.
In a recent speech at the Brookings Institution, Biden reflected on the roughly 3% economic growth and diminishing inflation since its spike in 2022, indicating that Trump would take office with a favorable economic backdrop. However, he cautioned that the tariffs and deportation policies proposed by Trump could lead to potential economic turmoil.
Although Biden’s investments in infrastructure and renewable energy have not translated into significant political traction, he warned against the economic fallout from disrupting or scaling back those initiatives. Trump enters the presidency with a higher national debt than his predecessor, a factor that could constrain the benefits and scope of his anticipated tax cuts. In 2020, the government was expending $345 billion annually to manage the debt; that cost has now surged past $1 trillion. On Thursday, Trump announced via social media that the federal government “will cut Hundreds of Billions of Dollars in spending next year” to sustain his tax reductions and manage the deficit effectively.
Federal Reserve Chair Jerome Powell remarked at a Wednesday press briefing that certain members of the central bank are beginning to consider the possible ramifications of Trump’s strategies on their economic outlooks. However, he reiterated the prevailing ambiguity surrounding what Trump’s policies will ultimately entail.
The path forward regarding tariff threats against various nations remains unclear, as does how Trump would finance tax cuts projected to increase deficits by $4.6 trillion over a decade.
“Some members identified policy uncertainty as a factor influencing their more cautious approach towards inflation forecasts,” Powell noted. He concluded with a relatable analogy regarding uncertainty: “it’s reminiscent of driving on a foggy night or navigating a dark room filled with obstacles. In such situations, you naturally proceed with caution.”