If you ask US President Donald Trump, his first year back in office has been a roaring success. But, while 2025 did not prove as economically catastrophic as many predicted, even Trump’s own supporters are increasingly frustrated, with affordability a key concern. Moreover, downside risks are growing, owing not only to a frothy AI sector, but also to Trump’s fiscal profligacy, reckless trade policies, attacks on the US Federal Reserve, mass deportations, and increasing military aggression.

According to American Enterprise Institute senior fellow Desmond Lachman, it is precisely these policies that have lifted consumer prices to a “meaningfully higher” level than they were at when Trump took office in January, and kept the average 30-year mortgage rate “above 6%,” making housing unaffordable. Far from turning things around before November’s midterm elections, Trump is likely to continue to pursue an agenda that is “fundamentally at odds with containing inflation.”

Anne O. Krueger of the Johns Hopkins University School of Advanced International Studies offers a similarly dismal assessment of Trump’s economic performance in 2025, especially his tariff policies. Beyond “impos[ing] steep costs on longtime US allies and erod[ing] American soft power,” tariffs have harmed American farmers, raised costs for US producers, and driven up the prices of some goods, such as beef and coffee. What they have not done is advance Trump’s stated goals of reducing the trade deficit and reviving US manufacturing.

To be sure, as Harvard’s Jeffrey Frankel points out, Trump’s tariffs did not lead to the inflationary surge and decline in real incomes that most economists anticipated in 2025. But many of those effects were probably simply delayed, he argues, not least because most retailers chose to “absorb much of the cost increase.” But firms “will not let tariffs erode their profit margins indefinitely,” so unless Trump reverses course, we should expect faster price growth in 2026.

Michael R. Strain, Director of Economic Policy Studies at the American Enterprise Institute, does not think that Trump deserve all the blame for America’s affordability crisis, though he agrees that “rolling back most of [Trump’s] remaining tariffs” should be a top priority. To prevent a massive defeat in the midterms, Trump should also “ensure that the Fed is perceived as being free of political influence”; offer real leadership on “kitchen-table issues” like health-care reform; and stop “arguing with the American people about their own experience.”

Trump’s “deeply disruptive” policy approach, including his tariff and immigration policies, is one major reason why Harvard’s Kenneth Rogoff anticipates greater volatility, particularly in asset markets, in the year ahead. Other factors include looming “geopolitical uncertainty,” global indebtedness and equity valuations that are “increasingly out of line with economic fundamentals,” and the “uncomfortably high” odds of a global stock-market crash, emanating from the AI sector, in the next few years.

But the prospects for 2026 are not all bad, observes the University of Pennsylvania’s Mohamed A. El-Erian. The US economy appears to be “locked in a tense tug-of-war between three distinct futures,” and the central scenario – a relatively strong economy, which “gradually builds secular strength” – is far from cataclysmic, though the probability that it will materialize “probably does not exceed 50%.” There is also a “tantalizing” alternative: a non-inflationary boom, in which AI is translated into “tangible, economy-wide productivity gains.” But a surge in volatility, “stemming from financial instability, policy error, election-year politics, and geoeconomic developments,” is just as likely.

WASHINGTON, DC – Heading into next year’s US midterm elections, President Donald Trump seems to have an affordability problem. Not only has he singularly failed to deliver on his promise to bring down prices and reduce mortgage rates, but his massive tax cuts, high import tariffs, purge of immigrants, and relentless pressure on the Federal Reserve to cut interest rates have made living in the US even more unaffordable.

No matter what Trump claims, the truth is that consumer prices are meaningfully higher today than they were when he took office in January, and the average 30-year mortgage rate remains above 6% – a level that has kept housing unaffordable, especially for first-time homebuyers. According to the Bureau of Labor Statistics, the annual rate of consumer price inflation as of September was 3%, or practically unchanged from when Trump started his second term. Thus, the consumer price level is around 3% higher than it was a year ago. No wonder US consumers – including one-third of Trump’s own voters – are expressing deep disappointment with Trump’s failure to deliver on his promise of lower prices and more affordable housing.

Looking ahead, there is every reason to think that Trump will not turn things around and mollify frustrated voters by next November. After all, he is pursuing a combination of fiscal, trade, immigration, and monetary policies that is fundamentally at odds with containing inflation.

Consider his fiscal policy. The One Big Beautiful Bill that Trump signed this summer cut taxes on a large scale and increased the budget deficit to stimulate aggregate demand. According to the Congressional Budget Office, the resulting stimulus should push US GDP up by 0.9 percentage points next year, putting the budget deficit on track to remain above 6.5% of GDP for the foreseeable future. Such stimulus should be sufficient to keep unemployment low and the economy growing at a reasonable pace next year. But it also reduces the likelihood of a deceleration in the pace of inflation from slackening demand or higher unemployment.

Voters are also unlikely to see much relief on the supply side. Trump has hiked import tariffs to around 17% – their highest level since 1936. According to the Yale Budget Lab, these additional levies on imports can be expected to increase consumer prices by around 1.3 percentage points in the short run. To date, it is widely estimated that companies have passed along only around half of the tariff increases to consumers; but consumers will be saddled with the remainder of the cost in due time. Trump’s efforts to deport all undocumented immigrants – and to discourage legal immigration, too – will further add to price pressures, especially in the construction and agriculture sectors.

Yet another reason for concern is Trump’s pressuring of the Fed to cut interest rates sharply while inflation remains above the 2% target, and despite his own budget policies stimulating aggregate demand. Trump will soon name a loyalist to replace Fed Chair Jerome Powell when his term ends this coming May, and he has already been making every effort to stack the Federal Reserve Board with monetary-policy doves.

But Trump seems to be overlooking the fact that the federal funds rate is not as economically relevant as the ten-year US Treasury rate, which determines the market rates for mortgages, car loans, and other key forms of borrowing. If investors come to believe that the Fed is not serious about hitting its inflation target, they will demand higher returns on their Treasury bond holdings, and that, in turn, will put upward pressure on mortgage rates. Investors might also put pressure on the dollar if they come to believe that the US is trying to inflate away its debt burden.

James Carville, President Bill Clinton’s political adviser, famously made the phrase, “It’s the economy, stupid,” the mantra of the 1992 election campaign. Looking ahead to next year’s midterm elections, the economic issue of affordability will be at the top of voters’ minds. Barring an abrupt economic-policy U-turn, the Republicans face dim prospects, and they have only themselves to blame.

WASHINGTON, DC – Almost a year after his return to the White House, the consequences of Donald Trump’s economic policies are becoming increasingly evident. From the beginning of his first term, most economists warned that many of Trump’s policies were not only fundamentally inconsistent with Trump’s stated objectives but would actively undermine them. As the costs continue to mount, many Americans are asking how much more damage he will inflict before he decides to reverse course.

Trump’s tariff policies are a case in point. Despite powerful evidence of their harmful effects and several partial reversals, Trump continues to tout protectionism. He has even claimed that tariff revenues would eliminate the need for the federal income tax – an assertion lacking an arithmetical basis.

In reality, his trade policies have imposed steep costs on longtime US allies and eroded American soft power. That loss alone would justify a return to an open, multilateral trading system, even if the economic consequences of Trump’s tariffs were less severe than they are.

For an economy to perform well, it must operate within a stable and enforceable commercial framework, supported by secure........

© Project Syndicate