Trump stares down early economic potholes
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Buy your local economist a drink: The economic backdrop is more chaotic and uncertain than it's been in years — a result of fast-moving and sometimes vague Trump policy.
Why it matters: There is a growing list of factors that could put downward pressure on the economy — tariffs, spending cuts, a looming government shutdown and more.
- America's economy has defied naysayers, but there is no guarantee that continues.
- Forecasters are writing GDP and inflation estimates in pencil, warning that their models can't possibly account for all the ways the jumble of policies could net out.
What they're saying: "It's really drinking from a fire hose at this point," Brian Gardner, chief Washington strategist at Stifel, tells Axios.
- "Trying to understand where things are going is unusually difficult, historically difficult," Gardner adds.
Where it stands: The Atlanta Fed's GDPNow model, a "nowcast" that uses released data to estimate GDP in real-time, suggests the economy is contracting sharply.
- That is almost certainly not the case, but it is a signal of the huge question marks about what's ahead for the economy.
The backdrop
Trump's epic trade war: The longer the North American and U.S.-China trade war lasts, the more damage it risks for the economy.
- Trump said automakers would get a month-long reprieve from Canada and Mexico tariffs. It was welcomed by the auto industry, though it injected more uncertainty about what happens after the delay.
- More tariffs are on the horizon in the weeks ahead, including a reciprocal plan on April 2 that Trump has called "the big one."
DOGE spending cuts: Tens of thousands of federal workers have been fired or taken a buyout, with more layoffs to come, though some efforts have been halted by federal judges.
- Government employees make up a small share of the overall workforce, but the effects of nixed contracts could ripple out to the private sector.
Shutdown threat: Congress has until March 14 to pass a bill to fund the government or risk a shutdown.
- Republicans want to pass a budget that chops spending to pave the way to enact Trump's fiscal agenda — a difficult task without cutbacks to politically sensitive (and expensive) entitlement programs.
- A prolonged shutdown would delay the data releases necessary to gauge any economic impact from the factors listed here.
Tax cuts: Some CEOs say the extension of Trump 1.0 tax cuts could offset potential economic weakness from the trade war.
- Concerns about blowing out the deficit might hamper that effort.
- The price tag is ballooning. In a congressional address, Trump called for no tax on tips, overtime or Social Security benefits. He pitched tax-deductible interest payments on loans for U.S.-made cars.
Immigration: The construction industry has warned about the potential double-whammy from deportations that could dent labor supply.
Two other factors to watch
Interest rates: The Fed has adopted a wait-and-see approach as inflation looks more sticky and White House policy remains in flux.
- Some economists warn that the trade war could keep inflation high and slow the economy, forcing the Fed to choose: elevated rates to control inflation, or lower rates to contain economic fallout.
AI adoption: In the background of all these factors is questions about how quickly companies are folding AI into their business models — and the ultimate impact on productivity and workforces.
- Companies are investing (or planning to invest) billions of dollars into data centers to power AI that, if fully materialized, might boost the economy.
