Donald Trump becoming the 47th president of the United States is going to have a big impact on the economy – and your finances.
The stock market surged Wednesday in response, with major benchmarks hitting record highs. That’s great for your 401(k).
Meanwhile, tax cuts will boost take home pay – another plus.
But there are fears his proposals for tariffs on imports and deportations of immigrants will have a knock-on effect on prices – causing inflation to surge again.
The housing market, the cost of owning a car, and the retail industry will all likely feel the effects of Trump’s policy decisions.
Here’s a breakdown of what a Trump win means for your money.
The stock market soared Wednesday morning off the back of the news, with major benchmarks hitting record highs
Inflation
While Trump’s main economic tools are similar to in his first term, the tariffs he is planning are higher, and the tax cuts are more narrowly targeted.
His second term also comes with a very different backdrop than his first.
In 2016, price pressures had been low and stable for many years, whereas inflation has only recently begun to cool toward the Federal Reserve’s target.
The pain of inflation is still being deeply felt by many Americans, said Nigel Green, CEO of independent financial advisory deVere Group.
Given these shifts, it is reasonable to worry that inflation risks would be magnified in a second Trump term, Marc Short, who served as legislative-affairs director in the Trump White House, told The Wall Street Journal last month.
The consensus among economists is that high tariffs will be inflationary, while tax cuts could increase growth and add to government deficits.
Trump is proposing a 60 percent tariff on all Chinese goods, and a 10 percent ‘across-the-board’ tariff on all $3 trillion worth of US imports.
These aggressive trade proposals would cost consumers at least $500 billion a year – or at least 1.8 percent of GDP – according to a paper published by nonpartisan think tank the Peterson Institute for International Economics in May.
Tariffs will increase the price of many everyday items, said deVere Group’s Green.
‘While Trump’s stated goal is to protect American industries, the effect of tariffs is to raise the cost of a wide range of products.
‘Items from electronics to clothing become more expensive as manufacturers and retailers pass the added costs on to the consumer,’ he said.
Trump’s immigration policy could also drive up inflation, experts have warned.
The Peterson Institute said that deporting immigrants would reduce economic output and increase the rate of inflation.
With fewer workers available, businesses would have to either raise wages, hike prices, or accept slimmer profits.
A separate study by economists at the University of Colorado found that for every one million unauthorized workers expelled from the US, 88,000 American workers lost their jobs during the Bush and Obama administrations.
Supporters of Trump’s immigration proposals say the economy will be better off if Americans are able to earn more doing jobs which are currently being carried out by foreign workers.
But the research found that immigrant workers in industries including hospitality and agriculture often do not compete with native-born workers.
That means if they are expelled from the country, the businesses are likely to scale back production rather than hire more US workers.
‘If he does the things he says he’s going to do, straight up, he will be hitting the US economy with a negative supply shock,’ Adam Posen, president of the Peterson Institute, told The Wall Street Journal.
‘Prices will go up, and the capacity of the economy to supply goods and services will go down,’ he said.
Economists across the political spectrum have warned that his proposals will trigger a new surge in inflation, which will have a wide impact on Americans’ finances
Government deficit
Trump’s growth-heavy and inflationary proposals are also due to run up the government deficit.
The bipartisan Committee for a Responsible Federal Budget estimates that Trump’s policies will add between $1.6 trillion and $15.6 trillion to the national debt between 2026 and 2035.
Following the news of the Republican win, Treasury yields soared. The 10-year Treasury yield jumped 4.46 percent, hitting its highest level since July.
When Treasury yields are high, it means that the cost for the federal government to borrow money is higher – which tends to lead to higher inflation and growth.
But it also means interest rates are likely to remain higher – which means more expensive car loans, credit card rates, mortgage rates and even student debt.
Interest rates and the Fed
Higher inflation would, in turn, compel the Fed to slow or stop its rate cuts.
The central bank begun cutting rates for the first time since 2020 in September, and is still cut rates by a further 25 basis points on Thursday.
But if the annual rate of inflation begins to rise again, and moves further from the Fed’s 2 percent target, the central bank may have to take action.
Higher interest rates makes borrowing money more expensive, piling pressure on Americans’ wallets.
While the Fed rate does not directly affect rates for loans and credit cards, it strongly influences them – and companies pass on higher borrowing costs to consumers.
Trump has also threatened to intrude on the Fed’s normally independent rate decisions if he becomes president and pressure policymakers to lower interest rates.
‘I feel the president should have at least say in there,’ he said during his campaign cycle.
‘In my case, I made a lot of money, I was very successful, and I think I have a better instinct than, in many cases, people that would be on the Federal Reserve, or the chairman.’
Trump also said he would lower mortgage rates, also there is not a clear path for a president to do this
Housing market
During his campaign, Trump blamed the housing shortage and rising prices on a surge of illegal immigration during the Biden administration – and said he would lower mortgage rates if elected.
In reality, the evidence that immigration is a major factor in housing costs is mixed, according to Realtor.com. While higher immigration levels can drive up local rents in a city, the post-pandemic surge in home prices began before illegal immigration levels increased.
Ralph McLaughlin, Realtor.com senior economist, said the kind of illegal immigration crackdown that Trump proposes would have ‘large and negative consequences on the US housing market in both the short and long run.’
‘In the short run, reducing immigration could severely hurt the labor supply needed for new homebuilding since up to a third of residential construction employment consists of foreign-born workers,’ he said.
In the long term, extreme immigration restrictions could have ‘spill-over effects to the broader economy,’ he added.
He has also called for slashing regulations and permit requirements that homebuilders say add unnecessary costs to new homes, and in doing so, boost home construction and cut prices ‘in half.’
‘Fewer regulations and more available space on which to build may reduce homebuilding costs and help increase the housing supply,’ LendingTree senior economist Jacob Channel told Realtor.com.
‘That said, limiting regulations won’t be enough to cut prices in half, and ending some isn’t a cure-all for the problems plaguing the nation’s housing market.’
Trump also said he would lower mortgage rates, but there is not a clear path for a president to do this.
Mortgage rates have actually been on the up over the last several weeks.
As of latest data from Freddie Mac from November 7, the average 30-year fixed-rate mortgage is 6.79 percent.
‘The president doesn’t set mortgage rates. If elected, Trump probably wouldn’t be able to arbitrarily decide to lower them even if he wanted to,’ Channel said.
Despite Trump saying that the Fed should take orders from the president about lowering interest rates, the central bank does not directly control mortgage rates either.
Instead, mortgage rates are influenced by the underlying bond market and move in response to investor expectations about the economy, inflation, and future fiscal and monetary policy.
If inflation and government spending rise under Trump, mortgage rates will likely also continue to rise.
Cryptocurrency and ‘Trump Trade’
Bitcoin hit a record high following Trump’s election victory.
The popular crypto-currency soared above $75,000 for the first time as the wider crypto industry reacted positively to the news.
Bitcoin rose more than 7 percent on Wednesday as Trump clinched victory over Kamala Harris.
The former president has previously vowed to end the industry’s ‘persecution’ by regulation and to introduce more pro-crypto legislation once in power.
‘The future of crypto has never looked brighter than today,’ Kris Marszalek, chief executive of exchange Crypto.com told the Financial Times.
The price of other cryptocurrencies, including solana and Dogecoin, also surged.
Other so-called ‘Trump trade’ stocks, including Trump Media, were up Wednesday morning.
Trump Media surged at the opening bell on Wednesday, before levelling off.
Tesla, whose CEO Elon Musk is a strong backer of Trump, rose 13 percent in late morning trading, boosting Musk’s wealth by roughly $15 billion.
Stocks in banks, private prisons and gun manufacturers, which are likely to benefit from a Republican presidency, also jumped.
Stocks rose following the news that Trump had won a second term, in good news for 401(K) retirement accounts
The stock market and 401(K)s
Stocks rose following the news that Trump had won a second term, in good news for 401(K) retirement accounts.
401(K) and IRA accounts tend to be invested in major indices including the S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite.
All three indices jumped following the news, with the S&P 500 hitting an all-time high.
The small cap benchmark Russell 2000 was also up 5.4 percent on Wednesday. Small companies, which tend to be more US-focused, are believed to enjoy outsized benefits from Trump’s tax cuts and protectionist policies.
‘For now, investor sentiment is pro-growth, pro-deregulation, and pro-markets,’ David Bahnsen, chief investment officer at The Bahnsen Group, told CNBC.
Taxes
It is likely that Trump will renew the tax cut package he first introduced in 2017, alongside his proposal for tariffs.
But since tariffs are essentially sales taxes paid by US consumers, middle-class households would actually end up paying more.
According to a paper published by nonpartisan think tank the Peterson Institute for International Economics, it would actually mean the typical US household would pay about $1,700 more in taxes each year.
Meanwhile income taxes would decline under Trump for all different income groups.
The biggest beneficiaries, however, would be high-income households.
Extending the 2017 tax cuts would also mean retaining the child tax credit of up to $2,000 per child under 17.
Vice President-elect JD Vance has also said that he would raise the credit to $5,000 – but that is likely to meet Republican resistance in Congress.
Retail
For retail, Trump’s victory brings a mixed bag of positives and negatives, with a large dose of uncertainty, said Neil Saunders, Managing Director of GlobalData.
Renewing the tax breaks introduced in 2017 would be a positive for retail, he said, as it would be broadly helpful to consumer incomes.
A corporation tax cut would also help retail earnings and retail investment.
‘There is a possibility that general taxes might be cut further, which will be facilitated by a friendly Congress,’ he said.
‘Although the soaring budget deficit will inevitably act as a constraint here. As such, it’s likely that new cuts will be targeted and focused on exempting tips and overtime pay from income tax and allowing households to take more deductions. In the round, this will put more money into consumers’ pockets and will bring a small boost to retail spending.’
However the huge downside for retail, Saunders said, is Trump’s tariff proposals, which will cause ‘an enormous headache and add significant additional cost for retail.’
‘Despite Trump’s assertions to the contrary, tariffs are paid by the companies or entities importing goods and not by the countries themselves.
‘This means the cost of buying products from overseas, whether directly or as an input for manufacturing, would rise sharply,’ he added.
CEOs and economists believe tariffs could raise the price of both gas and electric vehicles, Bloomberg reported
Cars
Trump has promised to promote US protectionism with his ‘America First’ agenda, which will likely result in higher tariffs on imported goods from other countries.
This could have large ramifications for the electric vehicle industry as many of the market leaders come from China, Japan and Mexico.
CEOs and economists believe tariffs could raise the price of both gas and electric vehicles, Bloomberg reported.
There is likely to be changes to electric vehicle tax credits, but it will take time to understand exactly what those might entail.
Trump is also likely to reverse aspects of Biden’s Inflation Reduction Act, which encouraged large investments into electric vehicle manufacturing and other green energy businesses.
The head of Toyota in the US, David Christ, said that Trump’s election might slow the shift towards electric vehicles but will not stem it entirely.
‘Those investments can’t be undone in four years,’ he said on Wednesday.
Student loans
Trump has generally opposed the wide-ranging program of student loan forgiveness put forward by the Biden administration.
The administration has forgiven more than $175 billion in student loans for more than 4.8 million Americans, according to the Education Department.
One particular program, the Saving on Valuable Education plan, known as SAVE, has been tied up in the courts due to lawsuits from Republican-led states challenging its legitimacy.
Those enrolled in the program have had their loans put in temporary forbearance during the court battle.
Trump is unlikely to continue the legal defense of the SAVE plan, Tristan Stein, associate director for higher education at the Bipartisan Policy Center told The Wall Street Journal.
He could also push Congress to replace the program, he added.
That means there is a risk that those who have had their payments paused may have to start paying again.