How Trump 2.0 Could Impact the Economy: 4 Policies to Watch

As Donald Trump prepares to occupy the Oval Office for a second term, we know investors are wondering how his proposed policies might affect the economy and, more specifically, the markets and their own portfolios.

Yes, the U.S. markets rallied on news of Trump’s win in November, with the Dow, S&P 500 and Nasdaq all finishing out election week 2024 at record closing levels. But that isn’t necessarily an indication of what’s ahead: It’s impossible to say how much of Trump’s agenda will actually come to fruition over the next four years, how Wall Street might respond, or what the long-term effects might be.

Here are four Trump policy proposals that, if enacted, could have an impact on your finances in the future:

1. Tax Policy

The expectation is that Trump will try to extend portions of the 2017 Tax Cuts and Jobs Act (TCJA) that are set to expire at the end of 2025—a move that could have benefits for both households and businesses.

For individuals and families, a TCJA extension could mean lower tax rates and a larger standard deduction. Certain small- and medium-sized business owners could also continue to claim the Qualified Business Income deduction, or “pass-through deduction,” to lower their personal tax liability.

Trump also wants to further reduce the corporate tax rate—from the 21% rate put in place by the TCJA to 15% for companies that “make their products in America.” While on the campaign trail, he also discussed eliminating federal taxes on certain types of income, including tips, overtime pay, and Social Security benefits.

Of course, all these cuts would be costly for the government, and would add to a rapidly-expanding federal debt that already tops $36 trillion. Which means some compromises are likely as lawmakers weigh the potential upside (economic growth) vs. the downside (widening the deficit).

2. Trade and Tariffs

Trump’s full trade agenda is still unclear, but he was upfront during the campaign about his plans to impose a tariff of 10% to 20% on all imports—and to place significantly higher levies on Chinese goods.

Tariffs, Trump says, can be used to raise revenue for the government, protect domestic industries, keep jobs in the U.S., and exert political leverage over other countries. But many economists warn that tariffs can also have negative side effects. One example: Businesses that must pay an increased tariff on imported goods may pass their costs onto their customers by pushing up their prices.

Trump can implement tariffs without much say from Congress, so we may get more specifics soon after he takes office.

3. Deregulation

There’s a reason the stock market soared the day after Trump was elected: Deregulation was a cornerstone of his campaign, and investors and businesses are hoping his efforts to reduce bureaucracy and cut down on red tape will boost growth, foster innovation, and create jobs.

Several sectors are expected to benefit from regulatory rollbacks and reductions. (Trump has been an outspoken supporter of digital assets and cryptocurrencies, for example.) But we’ll have to wait and see who and what gets attention first. While there’s been plenty of speculation out there about what regulatory reforms could mean for the markets and the economy, we recommend carefully assessing both the opportunities and consequences before making any changes to current investment strategies.

4. Interest Rates

During his first term, Trump frequently urged the Federal Reserve to cut interest rates more aggressively, and he’s expected to take the same approach in his second term. When Jerome Powell’s term as Fed chair expires in May 2026, Trump will have the opportunity to nominate a successor, and many believe he may choose a less traditional candidate in an effort to gain more influence over the Fed and monetary policy.

Powell continues to say the Fed’s interest rate decisions will be based on incoming data (inflation and jobs reports, for example). Last month, the Fed lowered interest rates by .25 percentage points and indicated there would be just two more cuts in 2025—not the three some economists had expected. Even though unemployment is still low, inflation remains stubbornly high, so the Fed is taking a cautious approach. Plus, with the new administration’s policies still unfolding, there’s a lot of uncertainty in the mix.

Stand by Your Plan

Whether you’re feeling elated or anxious about a second Trump presidency, if you have a financial plan that’s been set up to help meet your specific goals, the best course of action right now is to stick to that plan.

Some market volatility is expected as investors try to make out what the ramifications of Trump 2.0 might be. But it’s also likely that now that the election is over, compromises are coming. Trump and the Republican Congress may rework or even reconsider some proposals if they encounter too much resistance or if they don’t make fiscal sense.

You can be sure that the team at Octavia Wealth Advisors will be monitoring the situation, and we’ll provide you with regular updates, as well as our thoughts on how various scenarios may affect you. And please feel free reach out to us at any time if you have questions or concerns.