OPINION: Is Trump Inheriting Biden’s Recession?

Don’t look now, but the Atlanta Federal Reserve’s GPDNow estimate (www.atlantafed.org/cqer/research/gdpnow) for the first quarter of 2025 shows the U.S. economy potentially contracting [by up to nearly 3 percent] annualized. Coupled with initial jobless claims peaking up to 242,000 [as reported on Feb. 27], 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 to 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 is 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 January 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 un-inverted. Usually, the periods of un-inversion are when unemployment tends to rise. Well, since January 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 is a recession now 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. 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 President Trump’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 the U.S. was coming off 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.             

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Robert Romano is the VP of public policy at Americans for Limited Government, a conservative 501(c)(4) nonprofit organization that says it is dedicated to restoring constitutionally limited government, allowing individuals to pursue life, liberty, and happiness.