Don’t look now, but the Atlanta Federal Reserve’s GPDNow estimate for the first quarter of 2025 shows the U.S. economy potentially contracting 1.5 percent annualized. Coupled with initial jobless claims peaking up to 242,000 the past week, a good question to ask is whether President Donald Trump inherited a recession from the outgoing administration of former President Joe Biden?
It wouldn’t be the first time an incoming president had deal with either an ongoing recession or a new one in their first years of office. Just ask Richard Nixon (1969), Ronald Reagan (1981), George W. Bush (2001) and Barack Obama (2009) who all had recessions their first years in office.
Politically, the good news is each one of those administrations went on to get reelected relatively easily in 1972, 1984, 2004 and 2012. So, first year recessions are not politically fatal per se for the White House incumbents.
Midterms are what they are — regardless of the circumstances, there’s usually a 90 percent chance of the White House incumbent party losing seats in the House of Representatives during the midterms — and that’s agnostic in terms of recessions.
During and after Covid, slowdowns in global economic production combined with trillions of dollars of monetary and fiscal stimulus heated up inflation to 7.5 percent by Jan. 2022, peaking at 9.1 percent by June 2022. Overall, inflation outpaced earnings for the entire four-year period of Biden, even as the rate of inflation cooled — and it made Biden-Harris a one-term proposition.
During that time, the spread between 10-year and 2-year treasuries inverted and then uninverted. Usually, the periods of uninversion are when unemployment tends to rise. Well, since Jan. 2023, that spread has been rising — and so has unemployment by 1.1 million, and so has the unemployment rate, from a low of 3.4 percent in April 2023 to 4 percent in Jan. 2025.
The key point is that these trends have been ongoing for months and years. They didn’t begin yesterday. A recession today, if there is one, will have had many fathers.
The truth is, what goes up must come down. If there’s a recession no or soon, then it’s because inflation overheated the economy since 2021, the American people maxed out their credit cards and demand is finally pulling back. The upside is recessions tend to eat inflation, but the downside is unemployment goes up.
If so, the sooner the better. Rip off the band-aid, but the Trump administration would do well to manage expectations. And that applies to anything, underscoring a communications problem that any White House needs to overcome.
There are obviously very high expectations for the current administration and so accurately guiding those expectations is important. Cut inflation by when? Cut $1 trillion of spending by when? Increase food and energy production by when? Secure border and finish wall by when? Release the JFK-RFK-MLK documents (better not be redactions) by when?
Some matter such as resolving the war in Ukraine — which depend on Russia and Ukraine somehow coming to a settlement — are exigent and so only the President can truly communicate those.
The point is to set goals but also be prepared for setbacks. Nobody said this was going to be easy.
If the economy is softening following the inflation, then that could provide more of an impetus for the President’s plans to cut taxes and stimulate long-term growth, for example. And then, to control future inflation, to cut spending and borrowing, and so forth.
The “soft” landing — long sought by Biden and Federal Reserve Chairman Jerome Powell — was remotely possible but considering coming off of 9.1 inflation in 2022, and perhaps in hindsight, rather fanciful. Nothing is set in stone, naturally, but generally, all an administration can do is hope for the best — and prepare for the worst. Stay tuned.
Robert Romano is the Vice President of Public Policy at Americans for Limited Government Foundation.
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