3 Economic Trends the Middle Class Should Keep an Eye on Under a Trump Economy
Written by
Heather Altamirano
Edited by
Rebekah Evans
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As Americans look ahead to see how President Trump and a Republican-controlled Congress will affect their money, nobody knows for sure what’s in store — though there will likely be a slew of new policies. While it’s unclear what changes the administration will enact, there are key things to watch for.
Explore More: Here’s What Could Happen to Your Money in Trump’s First 40 Days in Office
Attention to economic shifts can help make informed financial decisions, reduce risk mitigation and identify lucrative investment opportunities. Keeping an eye on trends can also help steer clear of poor financial planning and adjust strategies if needed to stay on track.
With significant changes coming soon, here are three economic trends the middle class should keep an eye on and why, according to experts.
Higher Interest Rates
Inflation-weary Americans are hoping for relief from high prices on everything from groceries to housing this year and interest rates are something Steve Davis, certified financial planner (CFP) and wealth management advisor with Greenleaf Trust, advised to keep tabs on.
“The progress on reducing inflation to the Federal Reserve’s 2% year-over-year target has stalled in recent months,” he explained. “While inflation has come down meaningfully from its recent peak in mid-2022 (9.1% YOY), December’s Consumer Price Index (CPI) reading of 2.9% remains well above the Fed’s target and comes in as the third month in a row of CPI increases.”
“Expectations for changes in interest rates derive from the relationship between inflation and the labor market,” Davis added.
- “If inflation increases and the unemployment rate remains at relatively low levels (4% or below), then we are likely to see an increase in interest rates in an attempt to cool the economy.
- If inflation decreases significantly and the unemployment rate rises higher than expected, then we are likely to see a decrease in interest rates in an attempt to spark economic activity.”
High interest rates impact everyone but hit the middle class especially hard.
“These rates directly impact everything from mortgage payments to credit card balances, making everyday living more expensive,” said Danny Ray, founder of PinnacleQuote. “In fact, even a small rate hike can add hundreds of dollars to the cost of borrowing, especially for families carrying debt or looking to buy a home. Furthermore, higher interest rates often cool down the job market, which could lead to slower wage growth or job losses.”
According to Davis, there are several outcomes for the middle class when it comes to high interest rates, including a few positive aspects.
“Higher interest rates on certificates of deposit (CDs) and savings accounts means more opportunity for low-risk investments to earn an attractive return,” he explained. “Recall that an emergency fund (three to six months’ worth of living expenses) and funds for a near-term purchase should be kept in a liquid savings account.”
However, higher interest rates also mean less money in your pocket.
“On the flip side, higher interest rates can have consequences for adjustable-rate debt, such as credit card debt or adjustable-rate mortgages (ARMs),” Davis explained. “If not kept in check, higher rates could result in larger payments and could prove to be more challenging for consumers to pay off the balances. Racking up late fees or worse, such as defaulting on debt, shouldn’t be part of anyone’s 2025 plans.”
Housing Market Fluctuations
Homebuyers have faced mounting challenges of high demand, low inventory, soaring home prices and over-the-top bidding wars, which have made the dream of buying a home a nightmare for many.
While things are starting to level out, Ray noted to watch for housing market fluctuations trends before buying or selling.
“The housing market remains a cornerstone of the economy and directly affects the middle class,” he said. “Rising home prices or rent costs can significantly strain budgets, making homeownership or renting less affordable.
“In fact, shifts in mortgage rates can create opportunities for refinancing or signal the need to hold off on buying a new home. Understanding this trend can help you better time major decisions like buying or selling property,” Ray added.
Healthcare Costs
Trump’s victory could bring big changes to healthcare. Households relying on the Affordable Care Act might see some big disruptions. To help with the skyrocketing cost of premiums, millions count on subsidies and are at risk of losing them when they expire at the end of the year. The new administration will decide if the subsidies will be renewed, but Trump has suggested he won’t extend them, NBC reported.
“Healthcare remains one of the fastest-growing expenses for middle-class families,” Ray explained, “With rising insurance premiums, out-of-pocket costs and prescription drug prices, staying informed about healthcare trends is critical. For example, recent pushes for policy changes or healthcare reform could create opportunities to lower costs or expand coverage options.”
Watching these trends could make a massive difference in your wallet and financial security. Staying informed can help you navigate upcoming economic shifts and protect your money.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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