Trump 2.0: The Uncertainty Economy

All right, Molly. We have made it past the halfway point.
That's right. We hit a big milestone this week.
In the first 100 days, we have passed day 50. How much has Trump accomplished in his first 50 days compared to how much most presidents accomplished in the first 100? Has he set a new land speed record? Look, there's no question that this has been an action-packed and eventful first 50 days of the Trump presidency.
He has signed a record number of executive orders. At the same time, he has not passed a lot of legislation.
And especially considering that he does have, you know, majorities in the House and Senate, the legislative agenda is strikingly modest. But one of the things he's very good at is creating the impression of action, creating the impression of disruption so that people feel like he's doing stuff.
And that's a big, I think, part of the Trump political profile is just this idea that he's a strong leader. He's a man of action.
Well, all of this action is starting to create a reaction in the stock market and the broader economy, which is the main thing that I wanted to talk about today. But first of all, can you just remind us how important was the economy to Trump's presidential campaign and ultimate re-election.
In exit polls, voters said that the number one issue for the plurality of voters was the economy, specifically prices, and they rated Trump much better on that issue than his opponent Kamala Harris. And I think in a bigger sense, the economy has always been central to Trump's political brand.

He's seen as a businessman.

He's seen as someone who has a command of the economy.

And when voters look back on his first term, the principal thing that they remember is that the economy was good.

And so far, is this the economy that voters were expecting?

Doesn't seem like it. It seems like, you know, the stock market's going

down, various economic indicators are wobbly, and people are nervous. From the Journal, this is Trump 2.0.
I'm Ryan Knudsen. And I'm Molly Ball.
It's Friday, March 14th.

Coming up, Trump was supposed to be great for the economy.

So why is the economy looking so scared?

Plus, a Columbia student gets arrested,

and the Democrats' dilemma over a government shutdown.

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That's L-O-O-M dot com. All right, so we are going to talk about the economy today.
And to help us understand what is happening in the economy, we've brought in one of the best economic reporters out there, our colleague Nick Timuros, who covers the Federal Reserve. Hi, Nick.
Hi, Nick. Hey, Ryan.
Hey, Molly. Thanks for being here.
Thanks for having me. So, Nick, what is happening in the economy right now? Well, I think there's kind of two ways to look at this.
You can look at the economy just with all the backwards-looking data that economists look at, and you would say economy's doing pretty well. Not perfect, but we've had inflation come down over the last two years.
The unemployment rate is low. People have jobs.
They're spending money. Economic performance is pretty good.
You look at what's coming from all of the policy uncertainty. You have immigration changes, obviously big changes on trade policy with these federal spending cuts and layoffs at Doge.
And you say, wow, we're running a lot of policy experiments at once here, and that's not great for certainty and confidence, and who knows how this is going to go. Well, if you look at the stock market and listen to what businesses are signaling right now, it would seem that a lot of people are afraid that it is not going to go well, because the S&P 500 closed in correction territory yesterday, meaning it's down more than 10% from its recent high.
Companies are projecting weaker sales, and you're hearing lots more talk about a recession. And even President Trump, in an interview on Sunday, wouldn't rule out that a recession was possible.
Are you expecting a recession this year? I hate to predict things like that. There is a period of transition because what we're doing is very big.
Can you lay out as best as you can what Trump is trying to achieve with all these policy experiments and what is he trying to transition America toward? It's hard to say because the administration doesn't even seem to be clear on that point. I think what you kind of gather is we're gonna make more stuff here.
Over the last 30 or 40 years we've allowed other countries to make the things that we consume and we are an economy that produces more services, tradable services. This is high value but we lost a lot of manufacturing jobs over the last 30, 40 years.
So part of this is we're going to bring more of those jobs back. The reason I hesitate is the president and his advisors also talk about raising more revenue from tariffs, which would imply that we continue to import things from overseas and we charge people more for it and we raise revenue that way.
So I think there's a little bit of a work in progress on what exactly Trump 2.0 is driving at. Aside from the uncertainty, is there something about the policies themselves that business leaders and economists are concerned about? The concerns now really come in two ways.
One is that tariffs, which are taxes on imported goods, they're going to send up some prices again. So the Fed thought inflation was going to keep, you know, we're going to grind it all the way back to their goal, but it might take a couple of years.
Now you may go in the wrong direction. So that's one concern.
The other concern is you're going to weaken growth potentially here. We've had a labor market where hiring has been low, but firing has been low.
I call it a slow to hire, slow to fire equilibrium. And if you do something to disrupt that, you risk a big increase in the unemployment rate.

When the unemployment rate goes up by a little bit, it usually goes up by a lot. So those are the two concerns right now.
You're taking steps that could push prices up and growth down. And we don't really have a lot of experience with how that's going to work out.
Are there different kinds of recessions? Like the worry during the Biden administration was that the Federal Reserve might cause a recession by raising interest rates too high for too long. But now the concern about a recession seems to be driven by the tariffs.
Well, the worry right now, if you're at the Fed, you're charged with keeping prices low and stable and with maintaining a healthy labor market. And some of the actions on trade right now are creating what's called a negative supply shock, where you're disrupting supply chains.
The reductions in immigration also reduce the supply of workers in the country. And that's tricky because the Fed in that situation has to choose.
Are you going to cushion the hit to demand by lowering interest rates as the economy slows and as unemployment goes up? Or are you going to worry about inflation and prevent a bigger increase in prices by keeping interest rates higher than they otherwise would be? Which mistake are you willing to make here? Or, you know, you kind of have to, it's a lose-lose for the Fed. So they have to pick which thing they think is the bigger problem to worry about.
And sometimes that just isn't obvious. Well, I want to get your take on this.
Given how important the economy is historically for presidents, and all politicians, really, how unusual is it to see a president and Donald Trump acknowledging that, yeah, we might go through a period of pain. I can't rule out the possibility of a recession.
What do you make of Trump kind of leaning into this uncertainty? It's pretty remarkable. I mean, especially coming from Trump, right, who is usually someone who is sort of full of optimistic bluster, for lack of a better word, who is very good at messaging the idea that everything's going great.
I think, you know, the president and the people around him feel that he was elected on a platform of change, and he was elected as a disruptive figure. And so he has a sort of unique opportunity, and also because he is just such a dominant messenger, he has this unique ability to convince people that, yes, you're going to have to suffer a little bit, but it's for the greater good.
And once we get through this period of dislocation, everyone's going to be better off and the economy will be structured differently in a way that is better for the country long term. I think there's a lot of jitters about whether that's actually true, but it is a pretty unusual thing to be seeing in politics, a president who's basically admitting like, yes, I am causing you to have some unpleasantness in your day-to-day life, and I'm doing that on purpose because I'm trying to achieve something bigger.

The unique power of Trump to shape the narrative, though, might only go so far because there was a poll out this week from CNN that found that 56% of the public now disapproves of his handling of the economy, which is the first time this poll has ever found a majority of voters disapproving of Trump on the economy. I'm curious what you've been hearing from the business community, from business leaders about how they're reacting to all this.
Well, I'd love to hear what Nick thinks about this as well. You know, the business roundtable, which is a group of top executives, was in D.C.
this week, and Trump spoke to them, and I also spoke to many of the executives and people around them who were in town for this meeting. And in the public session, the on-camera part that Trump spoke at, it was very friendly.
There was no criticism, really. But privately, that was not what you heard.
Privately, I was struck by the level of pessimism. A lot of these CEOs and people in the business community are feeling very concerned and alarmed by where this is headed.
The thing that really alarms a lot of people in the business community is they always thought that Trump would be responsive to the market going down. They always thought that that was a really important metric to him.
And if something he did started to make the stock market slip, he would change course. And the fact that he's looking at the stock market slipping and saying, we're going to brazen through it, that has really set a lot of people on edge.
But Nick, what do you think? Businesses hate this, right? They just hate it. And it's not so much the tariffs.
I mean, a lot of businesses don't like tariffs unless it's going to protect their industry. What they don't like is that what's announced at 9 a.m.
may be different from what policy is at 1 p.m. versus what policy is at 5 p.m.
How do you plan for the future in that environment? I mean, if you are going to bring your factories back to the U.S., you want to know what the tariff rates are going to be, what the cost structure is going to be. So what I've heard from businesses, it's not so much we don't like tariffs and we don't want to see tariffs, even if that's true.
It's they want certainty. They want to know what the outlook is going to be, even if the tariffs are going to be really high.
Just tell me what they're going to be, and then let's get on with this, and we can plan for that. I think that's the issue that is most frustrating right now to business leaders.
And you're exactly right. They're not saying these things publicly because nobody wants to get into the president's line of fire.
All right. I want to bring in a question from one of our listeners, Charles Park, who when we got this question, my first thought was, I know exactly who I want to ask this of.
And it is Nick Timuros and you are here. So here we go.
In your podcast, you state that many economists fear the president's actions will further increase the United States' inflation.

However, it has been stated several times from the president and his administration that cutting government spending will lead to decreasing inflation,

if you look at Elon Musk's first interview in the Oval Office that was said.

Are they right?

So what do you think of this, Nick? Can cutting government spending help ease inflation? I mean, the answer is yes, but it's complicated. So cutting spending reduces demand.
That can help in an overheated economy. Absolutely.
That can help you get inflation and price pressures to cool off. The tariffs are more complicated because if you just raise tariffs once, you know, a set it and forget it.
We're doing this. It's going to be 10%.
It's going to infect on April 1st. And everybody knows now that's what's coming.
It'll raise prices, but it'll be a one-time effect. If it's only going to happen one time, you shouldn't react to it by raising interest rates or tightening monetary policy to constrain demand for something that's just going to resolve itself on its own.
You wouldn't want to hurt the labor market for something that's just going to play itself out. the worry on tariffs is if it begins to get bigger or it's spread out over a longer period of time,

then it's harder to tell, well, our price is going up because of tariffs or our price is going up because of broader factors in the underlying economy. And that's a situation where the Fed would need to step in and say, all right, we have to cool the economy down now.
So the policy experiments, they get sort of hard to untangle. All right, before we let you go, Nick, one last question.

Let's just cut to the chase.

Is there going to be a recession?

Yes or no?

I will never answer that question.

Just like I will never tell you who's going to win an election.

All right, well, Nick, thank you so much for your time.

Thanks, Nick.

Thank you, Brian.

Thanks, Molly.

Okay, we're going to take a short break. Don't go anywhere.
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Peloton. Something else that's making headlines this week, Molly, is the arrest of a Columbia student, Mahmoud Khalil.
Khalil was one of the students that was leading the pro-Palestine protests on Columbia's campus last year. And he often spoke with the media about ending the war in Gaza.
The students are here. They are holding their grounds until they get what they want, which is divestment from the Israeli occupation.
So Khalil is a legal resident. He has a green card.
So first, I'm just curious to know, what is the legal argument that the Trump administration is making for why he can be deported? They have said that they are revoking his green card. Interestingly, it appears that they may not have originally understood that that was what they were doing.
His lawyer said that when they first went to detain him, they said they were revoking his student visa and he said, no, I have a green card. And they said, well, we're revoking that too.
But they have said that they are revoking his green card because he led these protests, essentially. And he hasn't been accused of a crime, but instead the administration has invoked this sort of obscure statute that says that someone's permission to be in the country can be revoked or suspended if they interfere with American foreign policy.
So the first legal proceedings on this were just held this week, and I think we're still waiting for a lot of it to play out in court.

A judge has partially blocked the administration's action here, but I think there's a long way to go before we fully understand what the arguments are in this case.

Well, so if his arrest and deportation is legally questionable, why do it?

What is the message that the Trump administration is trying to send?

The administration... Well, so if his arrest and deportation is legally questionable, why do it?

What is the message that the Trump administration is trying to send? The administration is trying to send a message here. They're trying to make a statement.
And Secretary of State Marco Rubio came out and said, you know, there's going to be more where this came from. So, you know, these protests were a big flashpoint during the campaign.
and Trump and people around him made very clear that they wanted to crack down on them much harder

than the Biden administration did.

This week, Trump officials also moved to cut

about half of the staff of the Department of Education,

about 1,500 employees.

And Trump is expected to sign an executive order soon

that fully dismantles the agency. Why? What is the argument for getting rid of this agency? It's essentially a states' rights argument.
The Republicans have long felt, going back decades, that the Department of Education was not necessary, that education is primarily a local affair. There's over 10,000 school districts in America, and that's where most of the action takes place.
And most of that funding comes from states and localities. So what does the Department of Education do? What the Department of Education primarily does is twofold.
It is civil rights enforcement, making sure that local school districts follow civil rights law. And it's funding for low-income students and students with disabilities.
And that funding has to continue. These are functions that are not optional.
They're congressionally mandated that, you know, this money gets spent to support students with disabilities, for example. But the Trump administration isn't saying that they're going to get rid of that stuff, right? They just want to break those sort of narrower and more essential functions into different pieces and put them under different agencies.
Correct. The idea is that it might be moved into different parts of the government or sort of block granted to the states rather than having a federal department that administers it.
In practice, I think we have yet to see whether they can pull that off and how disruptive it may be, how much people may notice it in their everyday lives as a disruption to services that they rely on. If Republicans have been talking about this for so long, why hasn't it ever been done before? For decades, Republicans have said they want to get rid of the Department of Education and then they get elected and they get into office and they don't do it.
And the reason they don't do it is because there's a feeling that the politics of it are prohibitive, that it sounds nice as a campaign promise, but once you actually start meddling with people's education and with the education of their children, that leads to a lot of political blowback. So Reagan, for example, tried to do this and then backed off, and other presidents have not even really wanted to touch it, despite various promises in this regard.
All right, last question for you, Molly, before we say goodbye. We talked about this in our last few episodes, the showdown over a government shutdown.
Democrats have been trying to use the threat of a shutdown to win some concessions out of Republicans, but yesterday they threw in the towel and said they would support a Republican bill to keep the government open. What had Democrats been hoping to get out of this, and what does it say that they've decided not to let the government shut down? The principal thing that

the Democrats demanded was some kind of structural check on Elon Musk and Doge, some kind of language that would say that basically the executive branch has to do what Congress tells them to do, that if they're going to pass this funding, you know, the president has to abide by that. and the Republicans didn't agree to that.

So Democrats have had a series of anguished closed-door meetings. We reported on Wednesday that you could hear yelling coming out of the Senate Democratic lunch.
On the one hand, the Democratic base is absolutely on fire with anger. They are outraged.
They want to see their leaders fighting back against what they see the Trump administration doing. On the other hand, Senate Democrats don't want to be blamed for shutting down the government.
They don't want to be blamed for federal workers being furloughed and services being cut off. They see that as politically dicey for them, and many of them believe that they have a responsibility to keep the government open.
So at the last minute, the Democrats found a way to get themselves to a point where they would agree to this deal to keep the government open. I think it raises a lot of questions going forward about what, if any,

leverage they may have in the future, given that this was the main thing where Republicans needed

their votes. What does that say about the calculation the Democrats made? Look, Democrats

were in a difficult, if not impossible, spot politically, and they made the best of what

they saw as two bad choices. All right, Molly, Well, thanks so much, as always, for your time.

Thanks, Ryan.

Always fun to be with you.

We'll see you next week.

See you then.

As always, before we go,

do you have any questions

about what the Trump administration is doing?

Please send us a voice recording

to thejournal at wsj.com.

That's thejournal at wsj.com.

Trump 2.0 is part of The Journal,

which is a co-production of Spotify and The Wall Street Journal.

This episode was produced by Alan Rodriguez Espinosa

and edited by Katherine Whalen.

Molly Ball is The Wall Street Journal's senior political correspondent.

I'm Ryan Knudsen.