Biden Leaves Trump a Strong Economy, But Challenges Remain

Economic Handoff

President Joe Biden is passing on a robust economy to his successor, Donald Trump, reminiscent of the favorable handover George W. Bush received in 2001. Unemployment remains low, pandemic disruptions have largely subsided, and consumers possess ample spending power. The Yahoo Finance Bidenomics Report Card grades the Biden economy as A-, based on economic data from first-term presidents since Jimmy Carter in the 1970s. Few economists predict a recession within the next year.

Economic Concerns

However, Trump faces several economic challenges in 2025:

* Resurgence of Inflation: Despite inflation peaking at 9% in 2022, it remains above the Federal Reserve's 2% target at 2.9%. Tackling this "last mile" of inflation reduction will prove arduous.
* High Interest Rates: Long-term interest rates, such as those on 10-year Treasury bonds, have risen by 1% since last September despite the Fed's short-term rate cuts. This increase exacerbates housing affordability issues and raises concerns about future Fed rate reductions.
* National Debt: The $36 trillion national debt is becoming a concern among investors, leading to higher long-term interest rates to offset perceived risk. Bond market volatility could hinder Trump's legislative agenda if it worsens the debt and triggers further adverse bond market movements.

Trump's Influence

Trump has potential influence over inflation and interest rates. His proposed tariffs and migrant worker deportations could increase costs and prices, worsening inflation. Investors and consumers are already factoring this into their expectations.

Nonetheless, structural challenges will persist, limiting future economic growth. The aging population and declining immigration will result in a smaller labor force and slower productivity gains. Economists argue that these issues require solutions beyond tax cuts and deregulation, which have not historically proven effective.

Conclusion

Biden has left Trump a strong economy, but challenges remain. Tackling inflation, interest rates, and the national debt will require careful policy decisions by the Trump administration. Structural hurdles to growth, such as demographic changes and productivity stagnation, must also be addressed to sustain economic prosperity.