Trump Administration’s Macro-Economic Agenda

This is a partial of a much larger piece concerning the administrations Macro-Economic agenda and impact. It gives a sound take on what is occurring and what will occur if Pres. Trump continues toying with the US economy with on and off tariffs on the economy, etc. The one OBBB’s (defined at the end of this post) bill most definitely is having an impact on the economy.

Also, you may want to catch up on what New Deal democrat has been discussing (The Bonddad Blog) for weeks now and posted at Angry bear also. “Per Prof. Edward Leamer’s forecasting method, a yellow flag ‘Recession Watch” is warranted,'” Angry Bear.

“In the years before recessions . . . consumers contribute a total of 65% of the leading weakness. In contrast, business spending contributes only 10%…. The temporal ordering of the spending weakness is: residential investment, consumer durables, consumer nondurables consumer services . . .“

Spending on durable goods, motor vehicle sales for December, and manufacturers’ new orders for consumer goods have all declined. Every single item on Leamer’s leading checklist has turned negative except for consumer spending on services.

I believe Trump is trying to run the economy as if it was his own personal business.

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“The Trump administration’s macroeconomic agenda harms affordability and raises inequality,” Economic Policy Institute.

Figure A shows estimates of potential output and actual gross domestic product (GDP) over time. When actual GDP falls short of potential output, it can be inferred GDP is demand-constrained (more could be produced if economic actors simply spent more). The shortfalls of actual GDP relative to potential may look small on the graph. However, the shortfalls correspond to significant economic distress.

The growing gap between 2007 to 2009 is associated with the unemployment rate rising from 4.4% to just under 10%. Meaning ~9 million people lost jobs in this time period. Others dropped out of the labor force. Wage growth for workers keeping their jobs was also damaged. The leverage to gain wage increases (threat of leaving current job to find a higher paying one) lost power due to a labor pool of unemployed workers. Over the 2007–2017 period, excess unemployment translates into avoidable unemployment for U.S. workers. This period of soft labor markets kept wage growth firmly suppressed.

Throughout 2025, many have raised concerns the Trump administration policies could lead to a recession. It is surprising how this development could happen after considering the context. The economy (January 2025) handed over by the outgoing Biden administration was extremely strong. There were no obvious macroeconomic threats moving forward supporting a forecast of recession in the next few years.

For a recession to happen in the next year or two, there would need to be some short-run shock or drag on aggregate demand that forces it below the economy’s potential output. Despite the strength of the economy the Trump administration inherited, their subsequent policy agenda (since inauguration in 2025) contains plenty of reasons to worry about such drags.

For one, the Trump administration’s assault on the federal workforce directly destroys employment and incomes. Between January and December 2025, 290,000 federal workers have lost their jobs. While not enough by itself to drag an otherwise healthy national economy into recession (constitutes less than 0.2% of total employment), it certainly puts downward pressure on aggregate demand.

On top of this, the spending cuts in the 2025 Republican budget mega bill (White House refers to as the OBBB) will reduce aggregate demand in coming years. For example, the Republican megabill cuts SNAP and Medicaid benefits by a combined $100 billion per year on average over the next decade. Households receiving Medicaid and SNAP benefits will cut back spending sharply when these benefits are reduced.

Furthermore, the mega bill rolled back a set of Biden administration policies sharply reducing student loan payments. In coming years, households will have to pay substantially higher student loan payments to the federal government. If such increases can be paid at all.

Finally, a fiscal change (not an explicit part of the mega bill) is the expiration of enhanced subsidies to buy health insurance in the marketplace exchanges established by the Affordable Care Act (ACA). The rollback of these enhanced subsidies (also passed during the Biden administration) will double out-of-pocket payments for the premiums of the 20 million Americans enrolled in these exchanges, increasing costs by more than $30 billion annually in coming years.

The tax cuts in the Republican megabill is unlikely to do much to spur demand for two reasons. They are tilted toward high-income households. Their spending is not constrained by their current incomes. The tax cuts are small relative to a “current policy” baseline. This means they leave tax burdens (unchanged not appreciably lower) relative to 2025.

Impact of the Trump administration deportation agenda will have a negative effect on the economy’s supply side. Millions of immigrant workers are forced out of the country. However, immigrants are not just workers. They are consumers as well. Immigrant workers are key complements to U.S.-born workers in many industries. Deporting these consumers, complementary workers, and making it dangerous and harder for those remaining to conduct the normal business of their lives has an impact. It will have depressing effects on aggregate demand as well.

The radical uncertainty and chaotic implementation of Trump policies (trade policies) appear to freeze new business investment. Consider, who would set up a new manufacturing facility if they had no idea what the competitive landscape of the sector is going to look like in coming years?

For example, will Tariffs:

• Protect domestic production?

• Make imported inputs into the factory more expensive?

• Vanish overnight when a foreign government meets the president’s demands of the day?

• Cause future profits to be reduced due to the Trump administration demanding an ownership stake in companies?

Impacting business investments is by far the most volatile component of aggregate demand. It is the one impact which generally leads to recessions. In the end, it seems highly plausible Trump’s administration policies can cause business investment to seize up and slow growth.

OBBB can also be read as “One Big Bastard’s Bill.”