Trump is taking unprecedented measures to put the U.S. economy into "overdrive," and is highly likely to succeed this year.
On January 14, veteran Wall Street Journal reporter Greg Ip wrote that the three major levers Washington uses to control economic growth—fiscal policy, monetary policy, and credit policy—have never historically been coordinated, but this year they are all turning towards stimulus, reflecting the focus of Trump and congressional Republicans on accelerating economic growth, with the goal of winning the November midterm elections.
According to Greg Ip's analysis, on the fiscal front, the tax bill signed by Trump in July is injecting nearly $200 billion in stimulus into the economy; in the credit arena, regulators are relaxing bank capital requirements and lowering merger thresholds; on monetary policy, Trump is taking extreme measures to try to control the Federal Reserve, demanding that the next chair implement significant interest rate cuts. Analysts expect these measures to be sufficient to boost economic growth in the first half of this year by up to 0.5 percentage points.
The article also points out that this strategy is sacrificing other objectives: controlling debt, Federal Reserve independence, and long-term financial stability. Rising debt will make future generations poorer and could trigger a debt crisis, relaxing credit regulation could lead to a market crash, and subordinating the central bank to presidential goals usually ends badly. However, these consequences will manifest in the future. This year, investors are facing a rare situation of coordinated policy stimulus.
Major Fiscal Policy Shift: From Tightening to Injecting $200 Billion
The article states that in 2025, the U.S. economy performed strongly, with real GDP growing about 2.5%, continuing the solid pace of the previous two years. The main drivers were investment in artificial intelligence and data centers, as well as consumer spending buoyed by a strong stock market.
Notably, this performance was achieved against a backdrop of fiscal tightening—Trump's tariff policies raised about $200 billion, most of which was borne by U.S. businesses and households.
This year the situation is entirely different. The average tariff rate will not rise, and if the Supreme Court rules some tariff collections illegal, the rate could even fall.
Meanwhile, the tax and spending bill signed by Trump in July provides new or expanded tax credits, particularly for state and local taxes, overtime pay, tips, and seniors.
Although these tax cuts are retroactive to early 2025, withholding tables were only adjusted at the start of this year. Donald Schneider, a policy analyst at Piper Sandler, noted this will create a dual stimulus effect: many workers will see higher take-home pay this month and receive a refund for last year when they file their taxes.
He expects this to inject nearly $200 billion into the economy, enough to boost annualized growth in the first half of the year by up to 0.5 percentage points. Provisions in the bill allowing businesses to fully write off capital expenditures will also spur stronger investment.
Credit Spigot Opened: From Strict Regulation to Relaxed Limits
The article points out that the government's influence on risk appetite operates on both psychological and rational levels. Loose regulation once allowed subprime mortgages to fuel the housing bubble in the early 2000s.
After the financial crisis, new rules required banks to hold more capital against loan losses and hold cash against funding outflows, which limited their ability to lend.
Since Trump took office, regulators have begun rolling back these limits. Last year, a set of rules was relaxed, allowing large banks to hold more U.S. Treasuries. Capital requirements are set to be eased, obstacles to bank mergers are being lowered, and enforcement of consumer finance laws has weakened. All of this will stimulate lending.
Trump has just ordered Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds. These quasi-private companies guarantee trillions of dollars in residential mortgages, suffered huge losses when the housing bubble burst, and were forced into conservatorship by the Treasury Department in 2008.
According to UBS estimates, this move could lower mortgage rates by 0.1 to 0.25 percentage points, boosting homebuying demand.
Fed Pivot: From "Neutral" to "Stimulative"
According to the Wall Street Journal article, former Fed Chairman William McChesney Martin famously said the Fed's job is to take away the punch bowl just as the party gets going, meaning it would raise rates to curb inflation when growth was strong and financial speculation rampant.
Trump despises this. He believes the Fed chair should complement, not counteract, his other economic policies. "I want a person that, when the market is doing well, rates can come down because our country is getting stronger," he said Tuesday.
To this end, Trump has taken extreme measures to try to control the Fed. He attempted to fire a governor over alleged misstatements on mortgages and is now allowing the Justice Department to open a criminal investigation into Fed Chair Powell regarding headquarters renovation costs.
Fed officials currently anticipate cutting rates by 0.25 percentage points this year from the current 3.5% to 3.75% range, bringing rates to a roughly "neutral" level that neither restricts nor stimulates growth.
But Trump doesn't want neutral; he wants stimulus and insists the next chair must cut rates significantly. His two main candidates—White House economic adviser Hassett and former Fed Governor Warsh—have both shown dovish tendencies.
While they may not cut to 1% as Trump desires, market expectations are that due to favorable inflation news—waning tariff effects, falling oil prices, slowing housing inflation—and modest labor cost growth, the new Fed leadership will have reason for more aggressive easing.
Long-Term Costs Delayed
The article concludes by analyzing that the short-term impact of fully opening the fiscal, monetary, and credit spigots is obvious: the economy will experience rapid growth. However, the reason this strategy has been historically rare is because it comes with heavy long-term consequences.
The current policy path does not slow debt growth and may instead push the debt-to-GDP ratio above 100%, making future generations poorer and creating a risk of debt crisis.
Loosening credit and regulation against a backdrop of already high valuations could ultimately lead to a market crash.
Furthermore, forcing the central bank to subordinate itself to the president's political objectives usually ends poorly.
The article notes that despite this, with the Fed pivoting to easing, bond market "vigilantes" are unlikely to punish the budget deficit this year, and a market crash will not happen immediately. This year's theme is a policy-driven boom, with the consequences left for a future reckoning.
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