President Donald Trump’s economic policies have not led to the dire scenarios of recession or steep inflation that many economists have warned about over the last year. According to new commentary from the Brookings Institution, there are a few major reasons that economists have so far gotten it wrong.
Trump has challenged the conventional economic norms in multiple ways that economists have warned would stress the system.
Trump’s tariffs were struck down by the Supreme Court on Friday, but experts spent the year leading up to the decision predicting dire consequences from the sweeping trade policy. For the most part, though, downbeat assessments of tariffs and other Trump policies haven’t come to pass.
Trump has used tariffs aggressively and cracked down on immigration, shrinking the labor force, yut the economy has mostly held strong with unemployment still historically low and consumers still spending. He’s also tried to erode the Federal Reserve’s independence and has added to the national debt with the passage of the One Big Beautiful Bill Act. Interest rates haven’t had a big reaction to either development, both of which could be viewed as inflationary.
Ben Harris, vice president and director of Economic Studies at Brookings, put out some explanations for the discrepancies this week.
First, Brookings thinks everything has turned out better than some expected because the negative impacts of Trump’s policies and actions were overestimated to begin with. The Fed is difficult to influence, tariffs aren’t as steep as originally thought, and the pass-through to consumers has been smaller than expected.
“Perhaps mainstream economic models are simply wrong,” Harris wrote. “Is it possible the economics profession overstated the value of immigration, free trade, Fed independence, and a sustainable fiscal outlook?”
“It’s entirely possible that this volatile episode in American policymaking will lead to a greater understanding of the US economy,” he continued. “There could be one enduring lesson—learned both over the course of 2025 as well as during the pandemic—that the size and diversity of the U.S. economy usually protects it from sharp downturns.”
Second is the positive fiscal impact of both the One Big Beautiful Bill Act — the GOP’s landmark tax and spending bill — and of all the corporate spending on AI development. Harris pointed out that AI capex accounted for 40% of GDP in 2025; Goldman Sachs sees consumers’ disposable incomes expanding by 0.4% in the first six months of 2026 thanks to the OBBBA; and foreign investors have pledged to spend billions of dollars in the US amid Trump’s trade wars.
Third and finally, Harris said we may not have seen the final impact of Trump’s policies, and it’s still too early to issue a verdict on them.
“This explanation is consistent with economic theory and evidence. The economic impact of curtailed immigration and mass deportations can take years to materialize,” Harris wrote.
“The complexity of the FOMC’s composition means that it may take years until we see the full impact of political influence,” he added. “And on tariffs, as we have heard from our western trading partners recently in Davos, only now have they begun to explore alternatives to the U.S. in terms of trade and investment decisions.”
