Publisher’s Note: Twice a year, Dr. Rick Franza, AU’s Professor, puts our economy into perspective with his predictions. He’s wrapped up his semester and his presents with his bi-annual tradition!
A couple of reminders are necessary before I start. First, please note that my predictions focused on how President Trump might implement some of his campaign promises and what impact those policies might have on our economy.
Second, I wrote a column in early July in which I provided a mid-year evaluation of my predictions and also provided a “bonus prediction” which I will also evaluate today.
- Prediction #1: The 2017 Tax Cuts will be extended, rather than let expire. However, many of the promised enhancements will go by the wayside. Corporations are happy that their tax rate will remain at 21% (vs. a potential increase to 28% under Harris), and too many games can be played with tips and overtime.
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- Midterm Grade: B……. Final Grade: B
- Analysis: The “Big Beautiful Bill” was passed and signed shortly after my midterm analysis, extending the 2017 Tax Cuts, both for individuals and corporations, as predicted. I was partially wrong on tips and overtime, as taxes on both were eliminated, but only up to capped amounts and only until 2028.
- Prediction #2: Given the issues with entitlements and how much of the national budget they consume, Trump will choose to initiate major Social Security reform in 2025.
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- Midterm Grade: Incomplete…. Final Grade: F
- Analysis: This prediction was probably more of a case of wishful thinking than cogent analysis. President Trump had many other issues (see above and below) that he considered a higher priority, and the political reality is that Social Security is not something he can tackle before the 2026 mid-term elections.
- Prediction #3: President Trump will do some important and needed things on immigration right out of the box. He will secure the southern border and attempt to deport those illegal immigrants who have committed crimes. However, mass deportations are impractical, both economically and logistically. More than anything, President Trump is pro-growth, so his immigration efforts will be more surgical than broad-based. If handled this way, immigration policy will be an economic positive, whereas mass deportations would likely negatively impact economic growth.
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- Midterm Grade: A……. Final Grade: B+
- Analysis: At the midterm, it looked like this prediction was clearly on the mark. The southern border is secure, and many illegal immigrants who have committed crimes have been deported. While mass deportations appear to be off the radar for now, some pro-growth initiatives still need work. The cost of H-1B visas rising to $100,000 and the $1M “gold card” are controversial and potentially problematic.
- Prediction #4: President Trump pledged to impose 20% tariffs on all imports. Like immigration, I predict President Trump will use these tariffs more surgically to cut deals or to address security issues with countries like China.
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- Midterm Grade: Incomplete……. Final Grade: B-
- Analysis: This prediction is the most difficult to grade. Hence, the incomplete grade at the midterm, which also might be an appropriate final grade for the year, as President Trump changes policy regularly. In the long run, it appears that we are directionally trending toward an accurate prediction, but the ongoing uncertainty and merits a lower grade.
- Prediction #5: President Trump charged his Department of Government Efficiency (DOGE) to trim government spending through the elimination of bureaucracy and waste. While victory will be declared, it will be due to a significant reduction in regulation. While much has been made of applying business techniques to solve government inefficiencies and potentially eliminating whole departments (e.g., Education), it will be relief from overregulation that will lead to the most savings and positively impact economic growth.
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- Midterm Grade: B+/A-……. Final Grade: B+/A-
- Analysis: Nothing has really changed since the midterm. While DOGE generated a lot of headlines early in this Administration’s tenure, it ended up not really saving as much as promised. While these limited savings have been touted, it still looks like long-term savings and growth will come from relief from overregulation.
- Bonus (Midterm) Prediction: The Fed has four meetings (July, September, October, December) left this year in which they can cut rates. I do not think the Fed will cut rates in July. Although they may feel better about tariffs after July 9 (the meeting is July 30), I think they will want more data before making a cut. I think they will cut 25 basis points (1/4 percent) in September, although 50 basis points (1/2 percent) is not out of the question. I predict the Fed will cut a total of 100 basis points or 1 percent before 2025 is over.
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- Final Grade: B+
- Analysis: I was correct that the Fed would start cutting rates in September by 0.25%. However, while I predicted 1% in cuts, the Fed only cut 0.75%. While softness in employment is motivating the cuts, current levels of inflation have motivated caution in lowering rates further.
It looks like my predictions are somewhat of a mixed bag, which probably is not too bad considering President Trump’s overall unpredictability. During the next couple of weeks, I will be thinking about the future and will have predictions for 2026 in my next column, which will appear here on January 8.
Wishing you all a most blessed holiday season and a happy and healthy New Year!
