President-elect Donald Trump’s victory in the November 5 election has underscored deep-seated voter concerns about inflation and the economy. Trump’s campaign pledges included promises to end the “inflation nightmare,” cut taxes and boost consumer relief through tariffs and tighter immigration controls. As Wall Street eyes potential growth, economists examine how these policies could shape the economy and impact American households.
1. Tax Policy Implications: Trump aims to extend the expiring provisions of the 2017 Tax Cuts & Jobs Act (TCJA) and further reduce the corporate tax rate from 21% to 15%. This move would constitute one of the largest tax cuts in decades, benefiting all income groups, but especially high-income households. For instance, middle-class families earning about $80,000 annually could save around $1,740 in taxes by 2026, according to the Penn Wharton Budget Model. However, substantial gains would go to top earners.
2. Inflation Risks: While voters hope for relief at the checkout line, economists warn that Trump’s strategies could reignite inflation. Proposed tariffs on imports, essentially consumer taxes, combined with mass deportations, could tighten labor markets and raise production costs. This, in turn, might push the inflation rate up by as much as 1 percentage point, lifting it to around 3.4%, above the Federal Reserve’s 2% target.
3. Economic Growth Forecast: Initial gains in GDP growth could materialize due to corporate tax cuts, with projections showing a 0.3 percentage point increase by 2026, per Oxford Economics. However, growth could slow by 2028, impacted by tariffs and labor shortages from mass deportations. These measures could disrupt production and elevate prices across various sectors.
4. Housing Market Concerns: The potential impact on the housing market could be twofold: if inflation rises, the Federal Reserve may halt rate cuts, keeping mortgage rates high. Additionally, deportations could exacerbate the labor shortage in home construction, slowing the creation of new homes and pushing costs upward. Lisa Sturtevant, chief economist at Bright MLS, cautioned that tariffs would also increase building expenses.
5. 401(k) and Stock Market Impacts: Trump’s proposed tax cuts and deregulation could buoy company profits, potentially boosting the stock market and enhancing 401(k) values. Following Trump’s election win, indices such as the S&P 500 and Dow Jones surged on optimism for corporate growth. Trump’s plan to position the U.S. as a global crypto leader may also support cryptocurrency markets.
Despite potential policy benefits, the path to implementation may not be straightforward. With the House and Senate potentially divided or shifting dynamics, enacting sweeping tax and policy changes could prove difficult. Jacob Channel, chief economist at LendingTree, highlighted that significant policy shifts could face hurdles, leading to potential inaction.
“Inaction from the next Trump administration could mean that the economy continues on its current trajectory,” Channel noted.
While Trump’s return promises significant economic reforms, their full impact on consumer finances, inflation, and the broader economy will depend on legislative backing and successful policy execution.