Special Briefing: The New Administration’s First Month

President Donald Trump’s economic policy agenda reflects a stark pivot from the prior administration. From tariffs to budget cuts and government layoffs, significant disruptions underway at the federal level are poised to affect local, state, and national outcomes.

On February 20, 2025, Penn IUR and the Volcker Alliance hosted Special Briefing on the New Administration’s First Month, a panel discussion on the actions taken by the Trump administration since the President’s inauguration January 20 and their potential immediate and long-term impacts on the macroeconomy. 

The discussion was moderated by William Glasgall, Public Finance Adviser, Volcker Alliance and Penn IUR Fellow, and Susan Wachter, Co-Director, Penn IUR and Albert Sussman Professor of Real Estate and Professor of Finance at the University of Pennsylvania's Wharton School. The panel included a range of expert voices, including Carolyn Bourdeaux, Senior Visiting Scholar at the University of Georgia and Former U.S. Representative (D-GA); Jeffrey Holland, Vice President, Research, at the Peter. G. Peterson Foundation; Eric Kim, Senior Director, U.S. Public Finance, at Fitch Ratings; Vikram Rai, Head of Municipal Markets Strategy at Wells Fargo; Torsten Slok, Partner & Chief Economist at Apollo Global Management; and Mark Zandi, Chief Economist at Moody’s Analytics.

The Special Briefing was the latest in a series of 60-minute online conversations featuring distinguished guests from the Volcker Alliance’s national research network and Penn IUR, along with other leading academics, economists, and federal, state, and local leaders. Special Briefings are made possible by funding from The Traveler's Institute, Volcker Alliance, and members of the Penn IUR Advisory Board.

Although inflation has remained a pervasive challenge since the COVID-19 pandemic, key indicators including a stable unemployment rate and strong GDP growth signaled a robust economy coming into 2025. These metrics may shift amid the current political landscape, however; Zandi noted that they are marked by an overwhelming “uncertainty of economic policy.”

Downsizing efforts led by the Department of Government Efficiency (DOGE) exemplify this uncertainty. “One thing that we’ve been watching more recently is, of course, the impact of DOGE,” said Slok. While the unemployment rate has remained stable during President Trump’s first month in office, the looming threat of large-scale government layoffs could change this. “The implications from a macro perspective could become very, very important for interest rates, especially, of course, if the layoffs begin to show up in the form of a high unemployment rate,” Slok explained.

In tandem with the Office of Management and Budget, DOGE “is introducing an extraordinary amount of uncertainty to state and local governments,” Bourdeaux emphasized. “State and local governments really need to take this moment to do an assessment of how the federal government, federal spending and federal tax policy, even the economic impacts, will affect their budget,” she advised. Particularly through “big cuts in Medicaid,” Bourdeaux noted, “the impact on the economy of rural areas is likely to be substantial, and that has economic development consequences across big swaths of the country.” 

With federal support uncertain at best, “state and local governments realize that they have to rely on their own sources to meet their projects and financing needs,” added Rai. Economic impacts across states, however, could be disparate: “the wildcard for states is in terms of those that implemented major tax policy changes,” Kim said, adding that “we haven't seen what that actually means in a more normal economic environment, so there's a risk there that the revenue reductions coming from those tax policy changes are going to be more significant than anticipated, but slower revenue growth on the state and local government side is absolutely what we're seeing.” Nonetheless, Bourdeaux said that “the states generally are still pretty strong” where substantial reserves have been maintained in relation to their operating budget.

Alongside concerns of unemployment shocks, budget cuts, and inflationary pressures, a runaway national debt is at the forefront of the discourse on the macro economy. The country is currently on track “to exceed the all-time high deficit-to-GDP ratio of 106% in 2029,” Holland said. “So why does that matter? Well, high and rising debts crowd out savings and investment, which could lower future output and income relative to what would otherwise occur,” he said, adding that “the risk of a sharp jump in interest rates, perhaps related to a flight from U.S. Treasuries or U.S. assets more generally, would be heightened. Higher rates of inflation or loss of confidence in the dollar would have a greater chance of occurring, and tax revenues would be used to pay interest rather than to finance our current programs.”

Tariffs are also set to disrupt the macroeconomic landscape as President Trump implements one of his central campaign promises. Kim observed that “midwestern state economies could be particularly vulnerable to the imposition of blanket tariffs on imports from [Canada, Mexico, and China], and natural resource-rich states could face the most direct consequences from retaliatory tariffs by those nations. North Dakota, Louisiana, and Texas are the states with the most in exports to Canada, Mexico, and China as a percentage of their state GDP.” Among the greatest risks to the economy is “the potential for an unexpected recession, perhaps one brought on by material escalation and trade protectionism,” said Kim. Rai had a more optimistic perspective, however, noting that beyond the current executive orders, “tariffs need to be legislated to count as revenue offsets” which in turn may afford the implementation of tax cuts.

Speaking to the overall health and trajectory of the macro economy, Zandi described the 10-year Treasury note yield as “the single most important barometer of what's going on in real time.” He shared his view that “the risks are decidedly to higher interest rates. The biggest risk is that we see a major sell-off in the bond market. The bond market feels incredibly fragile.” Given the current climate, “the best forecast for long term interest rates is that they're going to be at the end of the year where they are today,” Zandi said. Slok echoed the sentiment, “Inflation is already too high, and that brings us to the conclusion that interest rates are probably going to stay higher for longer,” he said.

Related Materials

• Fitch Ratings website highlighting research, analyst commentary, and events on the economic and credit market impacts of major US Federal Government policy changes, covering trade, taxation, climate, and more.
• Fitch Ratings research comment published in December discussing potential state-level exposure to trade conflict with China, Canada and Mexico.
• Review the Federal Budget Outlook from the Peter G. Peterson Foundation

This briefing is the fifty-seventh in a series of sixty-minute online conversations covering critical issues impacting the fiscal health of cities and states, featuring experts from the national research networks of the Volcker Alliance and Penn IUR, along with other leading academics, economists, and federal, state, and local leaders. 

Special Briefings are made possible by funding from The Travelers Institute, the Volcker Alliance, and members of the Penn IUR Advisory Board. Recordings of the entire Special Briefings series are available on the Volcker Alliance website: SPECIAL BRIEFING SERIES ARCHIVE.

Be sure to subscribe to the Special Briefing podcast, available on Apple Podcasts, Spotify, Google Podcasts, TuneIn, iHeart Radio and more. 

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