The conundrum: The US economy will be a significant factor for 9 in 10 US voters when they head to the polls, per Gallup. And voters consider Donald Trump better able to handle the economy than Kamala Harris by a 54%-to-45% margin.

However, experts have a very different view.

• The majority of economists expect Trump’s economic plans would lead to higher inflation, interest rates, and deficits than Harris’ proposals, per a survey conducted by The Wall Street Journal.
• A Pantheon Macroeconomics analysis suggests that there will be “limited macro implications” if Harris wins, but a Trump victory will lead to “higher inflation and rates, and weaker growth, especially if the GOP sweeps Congress.”

Policies matter: While the vibes around the US economy remain less than ideal, consumers keep spending even if they are increasingly focused on value (we expect that trend to continue into the holiday season).

That reflects the reality that the labor market remains solid, inflation is approaching the Fed’s 2% target, and consumers’ buying power is growing. Those conditions are a “Goldilocks economic situation,” said JPMorgan CFO Jeremy Barnum, adding the “results…are consistent with a soft landing.”

But a Trump presidency could upend that trajectory.

• Trump pledges to institute across-the-board tariffs of 10% to 20% on imported goods, in addition to a 60% or higher tariff on imports from China. On its own, the policy would send US consumer prices soaring; every 1-percentage-point increase in the effective tariff rate would raise core PCE prices by 0.1 percentage point, per Goldman Sachs. But the action would also likely result in a messy trade war as other governments would respond in kind, leading to a significant hit to US GDP, per a Peterson Institute analysis.
• He plans to deport millions of people in what he calls the “largest domestic deportation operation in American history.” The policy would reduce the number of potential workers at a time when the unemployment rate is at a historically low 4.1%, and curb demand for goods and services, leading the US GDP to shrink by 4.2% to 6.8%, according to an analysis by the American Immigration Council. That would be a seismic shock on par with, or even greater than, the Great Recession, when the US GDP shrank 4.3%.
• He plans to blunt the Fed’s independence. That would likely lead him to push the Fed to set interest rates lower than they otherwise would, which would lower US GDP and lead to higher inflation.

Our take: We expect retail sales growth to trend around 3% through 2028. However, the post-pandemic era illuminates the major impact that inflation can have on consumer behavior. If Trump wins and puts his economic plan into place, it could lead to challenging days ahead.