Why Trump’s Economy Hasn’t Cracked Under Tariffs (Yet) | WSJ

Summary

The U.S. economy in 2025 is at a critical juncture, with strong consumer spending balancing slower growth and a weak labor market. Trump's steep tariffs have yet to spark significant inflation, though price hikes on big-ticket items have been seen. GDP growth has slowed, and job growth weakened in July, further complicating the Federal Reserve's decisions on interest rates. While a recession isn't imminent, economic uncertainty looms, with experts forecasting modest growth and predicting that the second half of 2025 will bring more clarity on the effects of tariffs and economic policy.

Takeaways

• 😀 The US economy is at a critical juncture, with mixed signals of strength and emerging weaknesses.
• 😀 Inflation has defied many economists' expectations, staying resilient despite tariff impacts.
• 😀 Although the US consumer remains strong, signs of weakness are appearing in the labor market and economic growth.
• 😀 Trump's tariffs have significantly increased, affecting global trade, with tariffs on some nations reaching as high as 50%.
• 😀 Despite the steep tariffs, there has not been a massive spike in prices yet, although some signs of inflation are emerging.
• 😀 The consumer price index (CPI) saw a modest rise of 2.7% in June, still above the Federal Reserve's target of 2%.
• 😀 Major purchases, such as appliances and furniture, have seen price increases, showing early signs of inflation.
• 😀 The US GDP grew at 3% in Q2 2025, rebounding from a contraction in Q1, but the overall pace of growth is slowing compared to 2024.
• 😀 Job growth slowed dramatically in July, with a significant downward revision of earlier employment figures, raising concerns about the labor market.
• 😀 The Federal Reserve faces a tough challenge in balancing price stability with job market health, as its policies affect both goals.

Q & A

Why is the US economy facing a critical moment?

The US economy is at a critical juncture due to mixed economic data, inflation pressures, and a weakening labor market, raising concerns about potential future instability.

How has inflation behaved in the current economic climate?

Inflation has been higher than expected, with the consumer price index rising 2.7% in June compared to the previous year, and the core measure increasing by 2.9%. This is still above the Federal Reserve's 2% target.

What effect have Trump's tariffs had on the economy so far?

Trump's tariffs haven't led to a massive price spike yet, but they've started affecting consumer prices, particularly on big-ticket items like appliances and furniture.

What is the current state of the US GDP?

The US GDP grew at a robust 3% annual rate in Q2 2025, reversing the contraction seen in Q1. However, overall growth for the first half of 2025 was 1.2%, lower than the 2024 average pace of 2.5%.

What does the GDP growth rate for the first half of 2025 suggest?

The slower growth rate of 1.2% in the first half of 2025 indicates a slowdown compared to the previous year, but it doesn't signal a recession, suggesting the economy is stabilizing, albeit at a lower pace.

Why did job growth slow in July 2025?

Job growth slowed significantly to 73,000 in July, well below expectations. This slowdown, combined with downward revisions to prior months, reflects the broader economic slowdown.

How does the Federal Reserve balance inflation and employment concerns?

The Federal Reserve faces a delicate situation with its dual mandate of controlling inflation and ensuring maximum employment. High interest rates may reduce inflation but also risk damaging the labor market.

What is the Trump administration's view on the Federal Reserve's interest rate decisions?

The Trump administration has criticized the Federal Reserve for not lowering interest rates sooner and continues to defend its trade policies, arguing that they are beneficial for the economy.

How are Trump's tariffs affecting international trade?

Trump's tariffs have significantly increased, with major economies facing a 15% tariff and some countries like Canada and India facing tariffs as high as 35% to 50%, potentially leading to inflationary effects.

What economic outlook is expected for the second half of 2025?

The outlook for the second half of 2025 is uncertain, with expectations of slow growth (between 0.5% and 1%) and potential inflationary pressures as businesses adjust to new tariffs and higher costs. It is unlikely to result in a recession but may affect average Americans' financial conditions.