The Trump administration inherited the strongest economy of any president since George W. Bush—and unlike that economy, there was no obvious macroeconomic imbalance set to pull down growth. In short, the stage was set for the incoming administration to ride the desirable trends of rapid growth in jobs and real wages—as well as declining inflation—for an entire term of economic strength.

Instead, the administration seems determined to squander and wreck the strong economy. Each of the individual policies they are pursuing—illegal layoffs of federal workers, mass deportations, constant threats and retractions of broad-based tariffs, and Medicaid spending cuts—would be bad for the economy. But each policy is also being pursued with maximum levels of chaos and incoordination, creating unprecedented levels of economic uncertainty. This uncertainty is itself a serious economic threat.

Below, we sketch out the macroeconomic dangers posed by each of the administration’s big policy initiatives so far, and end with an assessment of where this leaves the U.S. economy. The best outcome that could result from continuing these policies would be avoiding a recession but still sharply reducing growth and creating an U.S. economy that is significantly poorer than it would have otherwise been. The most likely outcome, however, is a recession in the coming year.

DOGE and the illegal attack on the federal workforce and payments

Among all the Trump administration blunders, the so-called Department of Government Efficiency’s (DOGE) illegal layoffs and contract cuts will show up first in macroeconomic data (they might already be showing up in unemployment insurance claims). The size of these cuts to date are not large enough to cause a recession by themselves, but if DOGE continues to pursue further cuts and they begin to add up to significant shares of the federal workforce, they could certainly spark a recession.

Further, the medium- and long-term damage of DOGE’s efforts are profound. DOGE is arbitrarily hacking away at key state capacity that is incredibly valuable and would be hard to reassemble quickly in the future. Their cuts also open up a number of new possible channels to trigger an economic crisis. Any one of these potential crises has a low probability of coming to pass, but creating multiple new possibilities for an economic wreck is extraordinarily reckless.

For example, cuts might erode our ability to detect and manage new pandemics. Or they might hamstring key public services that facilitate private-sector activity (such as air travel safety or scientific research). Given DOGE’s multiple demonstrated instances of misunderstanding basic facts about the government systems they are meddling with, it is far from inconceivable that DOGE could inadvertently cause key federal payments (say, interest payments to U.S. Treasury holders) to be missed or delayed. All in all, the unanticipated illegal DOGE attack on the public sector is the clearest current danger to the economy, which is saying a lot given the other bad policy efforts underway.

Further, the DOGE effort also creates huge uncertainty about how long the legal challenges will take to play out, whether Republican-appointed judges will be willing to cross the Trump administration, how long and in what form restitution will take, and even whether the administration will further the constitutional crisis by ignoring court decisions.

The Republican budget marching through the reconciliation process

The House budget resolution calls for cutting spending programs like Medicaid to help pay for a tax cut primarily for the rich, which would transfer income away from the bottom half of U.S. families and toward the very top. This is a terrible outcome by itself, one that would increase economic misery and inequality.

But the budget resolution if passed would also noticeably drag on overall demand growth in the economy. When disposable incomes fall for families living paycheck to paycheck, their spending falls in lockstep. Conversely, when rich families get a tax cut, they tend to save most of it. This decline in demand alone would force the Federal Reserve to cut interest rates to keep unemployment from rising. In turn, this would give the Fed much less ammunition to push back on any other recessionary force that arises in coming months.

This reconciliation process is also creating great uncertainty. It seems fairly sure that Republicans will extend the so-called Tax Cuts and Jobs Act (TCJA)—it is a universal Republican priority to keep taxes low for the rich. But it is still unclear whether this will be financed through cuts to spending like Medicaid (which would destroy demand) or just adding to the deficit (which would expand demand). Added on top of these layers of uncertainty are the possibility of a government shutdown and fights over the debt ceiling in the coming months.

Mass deportations

Should the Trump administration’s stated desires for mass deportations come to pass, this would constitute a profound shock to both demand and supply in the macroeconomy. In sectors where immigrants are a much larger share of workers than consumers—like food production, construction, and child care—prices will rise sharply as labor supply craters. In sectors where immigrants are more likely to be consumers than workers—retail, professional services, and durable manufacturing—demand will dry up.

Research has shown clearly that as immigrant workers are forced out of economies by enforcement measures, these economies suffer sharp employment declines of both immigrant and U.S.-born workers.

The final scope of the mass deportation efforts is also highly uncertain in macroeconomic terms (in human terms, we know this will cause great suffering). The administration might decide they are fine with highly performative acts of cruelty but not directly target millions of families. Or they might actually try to deport the millions they claimed they would target during the presidential campaign. Forecasting overall labor demand and supply given this uncertainty is extremely hard.

Unstrategic and chaotic tariff policy

Tariffs can be a useful policy tool. But the Trump administration’s approach to trade policy has been completely bizarre, with the strategic goal they claim to be targeting changing by the day (or even hour). And instead of using tariffs surgically to meet discrete goals, the Trump administration tariffs have been sweeping and across the board—often falling on goods (like many agricultural products) that the U.S. has no ability at all to produce domestically.

The initial rollout of widespread and high tariffs with no strategic goal was bad enough—these would have caused lots of pain to consumers while doing little to help workers in industries (like manufacturing) who have been genuinely damaged by past decades’ trade policy. But the administration has threatened—and even imposed—such tariffs only to yank them away again and again.

Radical uncertainty for its own sake

Each of these policy measures would be bad for the economy and typical families on their own. The fact that each comes with huge uncertainties creates even further damage.

This approach of pursuing destructive policy measures in the most chaotic and unpredictable way possible is tailor-made to freeze business investment in plants and equipment. What business will want to make plans about the future when key questions of demand, supply, the potential workforce, and the costs of inputs are entirely up in the air?

Swings in business investment are the most volatile parts of gross domestic product (GDP) in normal times, often leading the economy into recession. A policy approach that has led to the highest levels of economic uncertainty in history—higher than even the first months of the COVID-19 pandemic—is not a pro-investment agenda.

It is again worth noting the incredibly favorable investment environment that was handed off to the Trump administration. Business investment during the Biden administration grew faster than from 2017–2019, and significantly faster than it had averaged between 1979 and 2019. Further, the share of profits in corporate sector income hit historic highs in the pandemic recovery, offering huge incentives for businesses to keep investing in plants and equipment.

A policy agenda that manages to swamp this favorable investment momentum and send it into reverse would be a disaster, yet that seems to be where the radical uncertainty created by the Trump administration is taking the U.S. economy.

Uncertainty handcuffs the Federal Reserve

Finally, this uncertainty greatly complicates the Fed’s job. Inflation is currently running ahead of the Fed’s desired target, yet they have admirably tested the waters of lower interest rates because they have forecasted continued progress on lowering inflation even with slightly lower interest rates. But their forecasts are now far more uncertain. Multiple policy whipsaws that undermine both demand and supply growth will leave them very unsure about when and how much they should move interest rates to counter these policy shocks. Given that Fed policy is the first line of defense against recessions, policy uncertainty that makes it harder for them to recognize when the balance of demand and supply is getting out of line will see them acting less quickly than needed to recessionary shocks.

The U.S. will unambiguously be poorer at the end of Trump’s term

Absent a radical reversal of the current policy agenda, the U.S. will be a poorer country at the end of Trump’s term than it should have been. The only open question is how rapidly this de-growth will happen, whether more quickly through a sharp recession or more slowly as the supply destruction outpaces demand destruction.

My personal view is that avoiding a recession over the next year will require huge luck. The luck will either take the form of the administration quickly backtracking on many of its worst ideas, or in the fact that supply destruction will happen quickly enough that the demand destruction will not lead to spiking unemployment. But this second scenario is still very bad for U.S. economic growth, and either scenario will cause economic pain that was easily avoidable.