Key Takeaways:
- The current inflation rate is nearly unchanged from when President Trump took office, despite his claims of defeating inflation.
- Household utility costs and grocery prices have continued to rise, while gas prices have seen a noticeable drop.
- Trump’s policies, including tariffs, are keeping prices higher than they would otherwise be, according to some economists.
- The president’s promises to halve energy costs, make housing affordable, and end inflation have not been fulfilled.
- The median cost of a previously-owned home has risen, and many young people are locked out of the housing market.
- Trump’s new tax law is expected to drive up borrowing costs by widening the budget deficit.
Introduction to the State of the Economy
The US economy is a complex and multifaceted system, and taming it is easier said than done, as President Donald Trump is learning. Despite his claims of defeating inflation, the current rate is nearly unchanged from when he took office. In fact, the current rate of inflation, 2.7%, is virtually unchanged from the 2.8% rate of Trump’s first full month in office. This has led to widespread criticism, with about 53% of US adults saying the national economy has become somewhat or much worse off since Trump became president again, according to an Associated Press-NORC Center for Public Affairs Research survey.
The Impact of Trump’s Policies on Affordability
As a candidate, Trump made several bold guarantees about how he would quickly reduce the cost of living. However, his record on affordability falls short on previous promises. The consumer price index was 2.7% higher than a year ago in December, and inflation is much lower than the post-pandemic highs of nearly 9%, but still running at a stronger clip than the 2% that the Federal Reserve would like to see. Importantly, rather than driving prices down, Trump’s policies are keeping them higher than they would otherwise be, some economists say. The inflation rate was dropping when Trump was inaugurated on January 20, 2025, but has since climbed back up. Retailers have also swallowed a good chunk of the higher costs from several tariffs imposed by the White House last year on foreign foes and allies, but some are still being passed on to consumers.
The Effect of Tariffs on Inflation
The average tariff rate has increased significantly since Trump took office, from about 3% in January 2024 to around 15% currently, according to the Budget Lab at Yale. This increase in tariffs has led to higher costs for consumers, with a recent academic paper demonstrating that new tariffs have increased the current rate of inflation by 0.7 percentage points. The AP-NORC survey released January 15 shows roughly 58% of Americans said they think imposing new tariffs has "gone too far." The impact of tariffs on inflation is a significant concern, as it can lead to higher prices for goods and services, which can negatively impact low- and middle-income households.
Trump’s Promise to Halve Energy Costs
Trump’s most ambitious commitment may have been his pledge to cut energy bills in half. However, household utility costs have surged 41% between 2020 and 2025, according to a September analysis by J.D. Power. While much of that increase happened before Trump took office, those costs rose 5% since January 2025, the report said. The price per kilowatt hour of electricity went from 17.9 cents in January 2025 to 18.9 cents in December 2025, according to the St. Louis Fed. Consumers did see a noticeable drop in gas prices, which as of January 15 sat at around $2.84 a gallon nationally, down from $3.09 a year ago, according to AAA. However, this is still well above the "below $2 a gallon" gasoline prices Trump vowed to deliver in a September 2024 speech to the Economic Club of New York.
The State of Housing Affordability
Surveys show homeownership remains a critical milestone for most Americans, but it is becoming out of reach for many as housing remains scarce and pricey for buyers. In a September 2024 speech, Trump said "reducing mortgage rates" would help more young people buy homes. However, the 30-year fixed-rate mortgage averaged 6.11% on January 16, according to Bankrate, which is lower than the 7.04% it was when Trump took office, but still higher than he – and many homebuyers – would like. The median cost of a previously-owned home sold in December was $405,400, up only 0.4% from the prior year. Still, prices have risen so much over the past few years that many young people are locked out. The share of first-time buyers in the market just hit an all-time low of 21%, the National Association of Realtors said in November, and their average age rose to 40, an all-time high.
The GOP Message and the Upcoming Election
One area where Trump’s allies see a glimmer of hope in changing voter’s attitudes before the fall contests are the expected gains from making the 2017 tax cuts from Trump’s first term permanent. However, Democrats regularly slam the proposal for disproportionately benefiting the rich while cutting programs meant for the poor, such as Medicaid. More than two-thirds of the total cuts go to households making $217,000 or more and one-quarter of tax breaks to those with incomes of $1.1 million and up, according to an analysis by the Tax Policy Center. Due to the social spending cuts, Americans making less than $50,000 will lose an average of $700. The president predicted in December during a prime-time White House speech that 2026 will be the "largest tax refund season of all time," and experts have said this year filers could see significantly larger refunds. However, Trump’s new tax law will drive up borrowing costs by widening the budget deficit, experts point out. That’s because the more the federal government has to borrow, the higher the interest rate bond buyers are likely to demand. By 2054, the Budget Lab at Yale estimates, the 10-year Treasury yield will be 1.4 percentage points higher than it would have been had the bill not passed, which will raise interest rates on loans for everything from homes to cars.