Goldman Sachs has published an economic memo highlighting the key questions that will shape the US economy in 2025. The report provides in-depth analysis on economic growth, consumer spending, inflation, and interest rates, while shedding light on the impact of economic and political policies.
1. Will GDP Growth Exceed Expectations?
- Expectations: Goldman Sachs expects US GDP growth to reach 2.4% in 2025, higher than the consensus estimate of 2.0%.
- Reasons: Strong domestic demand, driven by private sector investments in areas like artificial intelligence and clean energy, supported by federal incentives such as the Inflation Reduction Act.
2. Will Consumer Spending Remain Resilient?
- Expectations: Yes, Goldman expects consumer spending to grow by 2.3% in 2025.
- Reasons: Rising real income, continued job creation in the labor market, and improved stock market performance, boosting consumer confidence.
3. Will the Labor Market Continue to Slow Down?
- Expectations: No, Goldman expects the unemployment rate to drop slightly to 4% by the end of 2025.
- Reasons: Increased demand for labor in sectors like technology and services, despite reduced supply of immigrant labor due to stricter immigration policies.
4. Will Core Inflation Fall Below 2.4%?
- Expectations: Yes, Goldman expects core inflation to decline to 2.1% by the end of 2025.
- Reasons: Reduced wage pressures and easing inflation from supply chain disruptions.
5. Will the Federal Reserve Cut Interest Rates?
- Expectations: Yes, Goldman expects the Federal Reserve to cut interest rates three times in 2025.
- Expected Dates: March, June, and September.
- Reasons: The Fed’s confidence in controlling inflation and supporting economic growth.
6. Will the Fed Raise Its Neutral Rate Estimate?
- Expectations: Yes, Goldman expects the Fed to raise its neutral rate estimate to 3.25% or higher.
- Reasons: Broad impacts of domestic demand and economic stability.
7. Will Trump Attempt to Remove the Fed Chair?
- Expectations: No, Goldman rules out the possibility of President Donald Trump attempting to remove Fed Chair Jerome Powell.
- Reasons: The law only allows the removal of the Fed Chair for “just cause,” which is difficult to prove.
8. Will Immigration Policies Change?
- Expectations: Yes, net immigration is expected to decline to around 750,000 annually.
- Reasons: Stricter immigration policies likely to be adopted by the Trump administration.
9. How Will Trade Tensions and Tariffs Impact the Economy?
- Expectations: Tariffs on Chinese imports are expected to rise, but not across all imports.
- Reasons: Such policies may lead to trade disruptions and increased costs for businesses and consumers.
10. What Are the Challenges for the Federal Budget?
- Expectations: Goldman does not expect a reduction in the federal deficit in 2025.
- Reasons: Tax cuts and increased defense spending will offset any attempts to control expenditures.
Conclusion
Goldman Sachs paints a picture of 2025 as a period of relative stability, but with key challenges related to trade tensions, inflation, and immigration policies. Despite risks, positive expectations for economic growth and consumer spending remain supportive factors that enhance the resilience and adaptability of the US economy.