Concerns Grow Over Trump's Economic Promises as Markets Decline

As voters re-elected Donald Trump to the White House in November, many had the economy on their minds. During his campaign, Trump promised to reduce prices quickly and predicted economic prosperity.

However, nearly two months into his new term, the reality appears different.

This week, markets took a downturn as several reports indicated that the economy is becoming increasingly unstable. Federal budget cuts, propelled by groups like Elon Musk's DOGE, raised fears regarding the job market, while threats of tariffs added to concerns for consumers already anxious about inflation.

On Thursday, the S&P 500 index fell into correction territory, closing at 10% lower than its recent peak. This marks its fourth consecutive week of losses, a streak unseen since last summer.

The decline followed Trump's intensified tariffs strategy, which included implementing duties on steel and aluminum, inviting retaliatory tariffs, and issuing warnings of more tariffs targeting Canadian goods and European champagne and wine imports.

Stock prices tend to reflect expectations for future profits. Many CEOs and analysts are indicating that American consumers are significantly changing their perspectives.

Ed Stack, chairman of Dick’s Sporting Goods, spoke to CNBC about the uncertainty in the economic climate. “What’s going to happen from a tariff standpoint?” he asked, highlighting concerns that rising tariffs might drive consumer prices up and affect spending.

On Friday, a report from the University of Michigan revealed that business outlook for the year ahead has dropped to its lowest level ever. The survey also indicated an increase in expectations for inflation and unemployment.

These findings are part of a larger pattern. A survey by the New York Federal Reserve released earlier this week showed that expectations for unemployment and consumers' ability to manage minimum debt payments have notably worsened. Additionally, the outlook for stock performance one year from now has dropped to its lowest point since December 2023.

The National Federation of Independent Businesses (NFIB), generally a conservative group, reported that its uncertainty index reached its second-highest level last month. According to NFIB chief economist Bill Dunkelberg, “Uncertainty is high and rising on Main Street for many reasons.” He noted that fewer small business owners expect better conditions in the coming months and that confidence in the right timing for expansion has dropped, although it remains above last fall's levels. Inflation continues to be a major concern, coming in second to labor quality as a problem for businesses.

No comments were provided by the White House regarding the negative economic outlook. However, Trump has not shown intent to alter his tariffs strategy, as his administration prepares the electorate for a potential downturn.

Commerce Secretary Howard Lutnick stated that a recession might be “worth it” to implement Trump’s economic policies, suggesting that the economy would bear Biden's influence until the fourth quarter. White House economic adviser Kevin Hassett predicted a resolution to the trade policy uncertainty by early April, followed by a significant economic upswing in the second quarter.

Treasury Secretary Scott Bessent emphasized the need for the economy to “detox” from reliance on public spending but later clarified that he does not foresee a recession. Trump has characterized the economy as being in a “transition.”

Others within conservative media circles are attempting to frame the current economic decline as “accomplishments,” noting decreases in mortgage rates and some improvements in consumer prices. While it is true that gas and egg prices have fallen, experts argue that these developments occur against a backdrop of dwindling overall demand and growing concerns regarding economic stability, as consumers begin to realize that the economy is not progressing as anticipated.

Joanne Hsu, director of the University of Michigan survey, stated that “Many consumers cited the high level of uncertainty around policy and other economic factors,” emphasizing how frequent changes in economic policies complicate future planning for consumers.

A report from Bloomberg News indicated that 48% of survey participants mentioned tariffs spontaneously during interviews, highlighting that these duties could lead to significant future inflation.

In a recent client note, JP Morgan's chief U.S. economist Michael Feroli lowered his projection for U.S. growth this year, anticipating that unemployment could rise to 4.4%. He remarked, “Heightened trade policy uncertainty should weigh on activity growth, particularly for capital spending,” adding that Trump's tariffs could increase inflation while adversely impacting consumer purchasing power.

“We held off on revising our economic forecast last week as we awaited greater clarity on trade policy,” Feroli concluded. “In hindsight, we could end up waiting a very long time.”

economy, uncertainty, inflation