At midyear, President Trump has more to brag about than his critics want to admit and many sober analysts expected.
Trump is on the verge of signing a huge tax cut bill that includes many of his campaign promises. The goofishly named One Big Beautiful Bill Act will extend individual tax cuts set to expire at the end of 2025. Most Americans won’t notice, because it will be a continuation of current tax rates. But that will be a lot better than what would have been de facto tax hikes had any of the tax cuts lapsed.
The BBB, as it’s known, will also eliminate taxes on some income from tips and overtime pay, two ideas Trump dreamed up while campaigning last year. Another measure will provide a tax break on car loan interest for vehicles built in the United States. Those measures will only last until 2028, leaving them up for debate in the next presidential election.
Trump is also announcing some breakthroughs as his July 9 deadline for trade deals approaches. Vietnam has accepted a 20% tariff on its imports to the United States, lower than the 46% “reciprocal” rate Trump proposed in April. Vietnam is a key source of footwear, clothing, and other products, and markets rose on what investors deemed upbeat news. That deal could be a template for other countries. Evercore ISI thinks similar deals with India, Indonesia, Switzerland, or Israel could be in the offing.
Perhaps more encouraging, the expected damage from Trump’s tariffs still isn’t showing up. Employers exceeded expectations by creating 147,000 new jobs in June. The unemployment rate fell a smidge, from 4.2% to 4.1%. The economy, for now, seems healthy.
Stock market investors feel relief too. The S&P 500 (^GSPC) stock index hit a long-awaited new record high on June 27, then went higher still. Investors have been looking hard for signs that Trump’s import taxes will trigger a fresh bout of inflation and haven’t found very many. The Federal Reserve is watching too, and if inflation fails to materialize, the central bank may resume its gradual pace of interest rate cuts later this year, providing a modest economic tailwind.
Trump has momentum. The odds of recession assessed by prediction markets have dropped from a high of 66% in early April to just 20%. That’s lower than when Trump took office.
There’s a huge question, though: Is Trump’s momentum sustainable? Or is this a one-time peak that will soon look like a high point Trump is unlikely to regain?
The risks seem tilted to the downside, in Wall Street speak.
First, the BBB contains some time bombs likely to backfire on Republicans who passed the bill with zero Democratic support. One is cuts to safety net programs that Republicans deemed necessary to offset the cost of the tax cuts. The bill will add new eligibility requirements for Medicaid, the health program for the poor, and cut funding by more than $1 trillion during the next decade, which could leave 12 million more people without insurance. It will also cut food aid benefits that serve 40 million lower-income Americans.
The bill will also add another $4 trillion or so to the national debt during the next decade, which comes as financial markets have finally begun to show signs that the US Treasury is issuing too much debt. All three major rating agencies have now downgraded the US credit rating, citing congressional unwillingness to rein in the debt. Congress just proved them right, again.
Most voters won’t know all the details of what’s in the tax bill. But they will know in general that the wealthy benefit the most. Sixty-six percent of the tax savings will go to the top 20% of earners, according to the Yale Budget Lab, while the bottom 40% get only 5% of the tax savings. The BBB is already unpopular, with 55% opposing it and just 29% in support, according to one poll.
U.S. House of Representatives Speaker Mike Johnson walks, on the day of the expected vote in the U.S. House of Representatives on final passage of U.S. President Donald Trump’s sweeping spending and tax bill, on Capitol Hill in Washington, D.C., U.S., July 3, 2025. REUTERS/Nathan Howard ·REUTERS / Reuters
It will most likely get less popular over time, as the 2017 tax cut bill did. Many ordinary people waiting for the benefits of the tax cuts to reach them won’t notice much. Republicans have also given voters something to blame them for, even if the BBB isn’t directly responsible for higher prices, rising interest rates, scarcer jobs, or whatever vexes Americans during the coming months.
And there will be something to vex them. While there’s no recession, there are many signs the economy is slowing. Employment growth averaged 216,000 new jobs per month in 2023 and 168,000 in 2024. That has now slowed further to just 130,000 new jobs on average in 2025. While the June numbers were better than economists expected, there were signs of weakness all the same. Economist David Rosenberg of Rosenberg Research points out that wage growth is slowing, people are working fewer hours, and it’s taking longer for the unemployed to find new work. Those are all signs of a weakening labor market, which regular workers have been highlighting in consumer confidence surveys.
Trump’s tariffs, meanwhile, are still coming to a store near you. Economists aren’t really sure yet how retailers and other big importers are dealing with the higher costs, but it’ll become clearer as companies begin to report second quarter earnings in mid-July. Trump pulled back on his most aggressive tariffs in early April after the stock market sank. But he has still raised the average tax on imports from 2.5% to about 15%, and that is real money American businesses and consumers are bound to pay.
Goldman Sachs said in a recent analysis that “the very early evidence suggests that the tariff effects on consumer prices are smaller than we expected.” Yet the Wall Street bank still thinks GDP growth will slow to a weak 1% by the end of 2025, with unemployment inching up and inflation rising from 2.4% to around 3.4%.
Weaker hiring and modest inflation could be enough for the Fed to cut short-term interest rates. But bond markets have been signaling all year that massive amounts of federal borrowing are likely to keep long-term rates higher than they’d otherwise be, making mortgages and most consumer and business loans costlier. Trump is having a moment, but the buzz of signing tax cuts and announcing trade deals may soon yield to a bevy of headaches.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
