Navigating Economic Uncertainty: Insights from Special Briefing

As the Trump administration marks its first month in office, economic policy shifts are already making waves across the federal, state, and local levels. From government downsizing and budget cuts to trade tariffs and mounting national debt, the landscape is fraught with uncertainty. To unpack these developments, Penn IUR and the Volcker Alliance hosted a Special Briefing on February 20, 2025, bringing together leading economists, policymakers, and financial experts for a timely discussion on the administration’s early economic moves and their broader implications.

A Climate of Economic Uncertainty

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 briefing featured a distinguished panel of experts, including Carolyn Bourdeaux, Jeffrey Holland, Eric Kim, Vikram Rai, Torsten Slok, and Mark Zandi. Their discussion underscored the uncertainty surrounding economic policy under the new administration and the potential ramifications of recent federal actions.

While the economy entered 2025 with a stable unemployment rate and strong GDP growth, Zandi of Moody’s Analytics noted that these indicators might shift under the weight of new policy directions. “The risks are decidedly to higher interest rates,” he cautioned, pointing to the fragility of the bond market and the potential for volatility should investor confidence wane.

Federal Downsizing and State-Level Impacts

One of the most immediate policy shifts is due to the sweeping impact of the so-called Department of Government Efficiency (DOGE), which has spearheaded federal workforce reductions. Slok of Apollo Global Management highlighted the potential macroeconomic impact of large-scale government layoffs, particularly on interest rates and employment levels. “The implications could become very, very important, especially if these layoffs contribute to a rising unemployment rate,” he said.

State and local governments are also facing fiscal uncertainty due to federal budget cuts. Bourdeaux, a former US Representative now at the University of Georgia, stressed the need for proactive planning, noting that reduced federal support—particularly cuts to Medicaid—could significantly impact rural economies and economic development nationwide. “The impact on state and local budgets cannot be overstated,” she warned.

Tariffs and Trade Tensions

Trade policy is another key area of concern, with the Trump administration implementing broad tariffs on imports from Canada, Mexico, and China. According to Kim of Fitch Ratings, states with strong export ties to these nations—such as North Dakota, Louisiana, and Texas—are particularly vulnerable to retaliatory measures. “The potential for an unexpected recession, perhaps driven by escalating trade protectionism, is a real risk,” Kim stated.

Rai of Wells Fargo, however, suggested a more tempered view, noting that full implementation of new tariffs would require congressional action. This legislative process, he argued, might create opportunities to mitigate negative economic consequences.

Rising Debt and Interest Rate Pressures

Adding to the economic headwinds is the trajectory of national debt. Holland of the Peter G. Peterson Foundation projected that the U.S. is on track to surpass a deficit-to-GDP ratio of 106% by 2029. He warned that this level of debt could crowd out savings and investment, weaken economic output, and heighten the risk of rising inflation and interest rates.

Zandi echoed these concerns, pointing to the 10-year Treasury note yield as a key indicator. “It’s the single most important barometer of what's going on in real time,” he explained. Given the current climate, he predicted that long-term interest rates are unlikely to decrease in the near future.

Expanding the Reach of Special Briefing

Amidst these pressing economic discussions, Penn IUR is teaming up with the Travelers Institute, the public policy division of Travelers. Wachter emphasized the significance of this new alliance: “By partnering with the Travelers Institute, we can expand these critical discussions on urban resilience, municipal finance, and economic sustainability at a time when cities and states need informed strategies more than ever.”

Looking Ahead

With economic uncertainty on the rise, state and local governments must brace for potential fiscal shocks. As Bourdeaux noted, states with strong reserves are in a better position to weather these changes, but all levels of government should reassess their financial strategies in light of evolving federal policies.

The next Special Briefing: The Future of Mass Transportation under Trump and the GOP, is scheduled for March 18, 2025, at 11:00 am EDT. This discussion features Leslie Richards, Professor of Practice at the University of Pennsylvania Stuart Weitzman School of Design and former General Manager & CEO of Southeastern Pennsylvania Transportation Authority (SEPTA) in conversation with David Greising, President and Chief Executive Officer, Better Government Association and Polly Trottenberg, who recently served as Deputy Secretary of Transportation under Pete Buttigieg. 

For those looking to dive deeper into these issues, recordings of the Special Briefing series are available on the Penn IUR and Volcker Alliance websites. Stay informed by subscribing to the Special Briefing podcast on Apple Podcasts, Spotify, Google Podcasts, and other major platforms, or subscribe to the Penn IUR Urban Link or Volcker Alliance newsletters.