Despite the constant and steep vicissitudes throughout his first year back in the Oval Office, President Donald Trump has ended it with a Goldilocks economy.
After four years of former President Joe Biden’s unprecedented fiscal expansion stoked the worst inflationary crisis in 40 years, annual consumer price index inflation fell from 3% to 2.4% in the year since Trump’s second inauguration. The Federal Reserve’s preferred measure of core CPI inflation, which excludes the volatile categories of food and energy, is down from 3.3% to 2.5%. Productivity growth has soared to almost 5%, with GDP projected to reach the same. And despite bipartisan panic over a supposedly deteriorating labor market, the unemployment rate has remained near historic lows at 4.3%.
Trump has not completely fixed the economic destruction wrought by Bidenomics, but just one year on the job, and the data provide evidence that for the first time in postwar history, an unambiguously soft landing may be in sight.
The clearest data point is the one that matters most to voters: Whereas real average weekly wages fell nearly 4% throughout Biden’s presidency, real paychecks have increased by 1.9% in the first year of Trump’s presidency. Voters who believed that lowering inflation meant lowering prices may have been unimpressed thus far with Trump’s economic performance. The president’s inordinate focus on tariffs that have been largely walked back and refocused as useful political weapons rather than blockbuster new taxes on American importers has not helped, but finally, the Trump economy may be giving voters what they don’t realize they really want.
We obviously do not want prices across industries to broadly fall, because that would entail crashing the economy as a whole, but we do want prices to stabilize around that 2% annual inflation rate while the economy grows in real terms. This is what has finally happened under Trump 2.0. Even if voters are annoyed that prices themselves haven’t come down, nearly 2% annual wage growth should finally have consumers realizing they can buy more things with the paychecks they receive for the same amount of work.
Why, amid all the chaos of Trump’s new tariff threats, the sword of Damocles that is the Supreme Court’s pending ruling on the matter, and the GOP’s apparent disinterest in codifying future fiscal reform, should we have any confidence in the White House’s ability to continue to drive inflation downwards? The dominant, yet rarely acknowledged, reason is the dramatic decrease of the deficit under Trump 2.0.
THE BAD BUNNY HALFTIME SHOW WASN’T FOR YOU OR ME
After falling 4% in fiscal 2025, the federal budget deficit is down another 20% in the first third of fiscal 2026. This is less because of minor spending cuts by the Trump administration and more because of the Laffer curve in action.
Even though government spending is up 2% thus far in fiscal 2026, revenues are up a staggering 12%. While tariff revenue is not insignificant, the majority of the increase is due to higher individual income and payroll taxes, driven by rising real wages, higher stock market returns, and the broad-based economic growth we all expected from both Trump’s executive deregulation and the One Big Beautiful Bill Act. These policies reduced the deficit, driving down both inflation and the interest rates on U.S. Treasuries — and thus the ones paid by the federal government and passed on to consumer borrowing, such as mortgage rates. In other words, the best may be yet to come.
Local zoning regulations that constrict housing supply will continue to stoke affordability concerns among Americans who are still locked out of the housing market. And Social Security, which is already proving 8% more expensive this year than in 2025, is a ticking time bomb due for an average 24% benefit cut upon insolvency in six years. But in the short term, Trump has indeed repaired much of the remaining economic destruction he inherited from Bidenomics. Should real wage growth persist, the inflation crisis could finally be well and truly over.