2025 Economy Outlook Trump Plans Threaten Growth!

Forecasters predict that the U.S. economy and job market will slow down in 2025 but still achieve solid growth due to easing inflation. However, there is a notable level of uncertainty in the outlook, attributed to President-elect Donald Trump’s conflicting policy agendas. Trump’s proposed implementation of significant tariffs and deportation of millions of undocumented immigrants may fuel inflation and hinder economic growth, according to experts. On the other hand, his plans to extend tax cuts and reduce business regulations could potentially boost the economy and have varying effects on inflation.

The key question is which of Trump’s opposing policy approaches will have a more significant impact on the economy in the upcoming year. Some economists believe that a focus on deregulation, tax cuts, and incentives could lead to stronger growth, while others warn of higher inflation and weaker expansion if tariffs and immigration policies take precedence.

Overall, the consensus is that 2025 will be a transitional year for the economy post-pandemic, with wage growth outpacing inflation, driving consumer spending and job creation. The Federal Reserve’s ongoing interest rate cuts are expected to support growth, assuming inflation continues to ease.

It is anticipated that Trump may scale back on his proposed tariffs and deportation measures, which could delay their effects on the economy until later in the year. Analysts have revised earlier predictions of a recession, now forecasting a slower but still growing economy in 2025.

Regarding tariffs, Trump is expected to impose lower rates on imports from China and other countries than initially promised during his campaign. Economists also anticipate additional levies on countries such as Canada, Mexico, and certain European and Asian nations.

As for immigration policies, it is speculated that Trump may adjust his approach due to the logistical challenges of deporting millions of undocumented immigrants. Additionally, Trump is likely to consider the impact of his policies on the economy and stock market, potentially softening tariffs if they negatively affect these indicators.

Economists anticipate that under President Joe Biden’s administration, there will be around 500,000 deportations annually and stricter regulations on border crossings, resulting in a decrease in net immigration to about 700,000 from the previous average of 2.5 million per year. Regarding federal taxes, it is not expected that they will decrease significantly in the near future. Tax cuts from the Trump administration are set to expire in 2025, and it may take until 2026 for new tax cuts to stimulate economic growth. There are plans to extend lower tax rates for all income levels, provide increased write-offs for business investments, and reduce the corporate tax rate.

Furthermore, potential deregulation in industries such as oil, gas, banks, and tech could lead to more investment, although the impact on gasoline prices is uncertain. The stock market and small business confidence have already seen positive growth post-Trump’s election, possibly encouraging more investment and hiring by 2025.

Economic growth is forecasted to be around 2.1% this year, a slight drop from the previous year. Tariffs and immigration restrictions are expected to impact the economy negatively, offsetting the positive effects of tax cuts and deregulation. Inflation has decreased from its peak in 2022 due to resolved supply chain issues, but consumer prices may rise due to import tariffs and labor shortages.

With regard to consumer spending, wage growth has overtaken inflation since May 2023, allowing consumers more purchasing power. However, higher labor costs could lead to increased prices for consumers. Inflation is predicted to rise back to 2.4% by the end of the year, and it may not reach the Fed’s 2% target until 2029.

Government figures indicate that the economy is anticipated to maintain its growth trajectory into the current year, primarily driven by robust consumer spending, which accounts for about 70% of economic activity. Economists suggest that sustained growth in productivity, specifically in terms of output per worker, could enable employers to uphold 4% pay raises without experiencing a significant surge in prices. However, the bulk of this increased spending is expected to stem from higher-income households, benefiting from appreciating stock and real estate values, as highlighted by Zandi and Sweet. Conversely, lower- to middle-income individuals are likely to grapple with escalating credit card debt and high delinquency rates, although the alleviation of interest rates may provide some relief, according to Zandi.

Nonetheless, the imposition of tariffs is predicted to erode consumer purchasing power and dampen overall spending, given that reduced immigration levels will result in a decline in the contributions from migrant populations who have traditionally supported consumption. Economists project a healthy uptick of 2.4% in consumer spending this year, slightly lower than the 2.6% growth recorded in the previous year, with Zandi emphasizing that consumption levels would have been higher if not for the impact of tariffs and immigration restrictions.

In terms of the job market, monthly job growth is forecasted to decelerate from approximately 173,000 positions in the recent past to 100,000 by the end of the current year, as outlined by Moody’s estimates. The surge in rehiring following substantial layoffs at the onset of the pandemic has tapered off, according to Feroli. Consequently, diminished consumer spending is poised to translate into reduced labor demand from businesses. Furthermore, constraints on immigration are likely to impede the expansion of the labor force, leading to potential labor shortages in industries reliant on immigrant labor, such as hospitality and agriculture, as indicated by Moody’s. Zandi anticipates the labor force to expand by 0.5% annually during the current administration, a stark decline from the 2% growth observed in recent years.

Moreover, the potential implementation of hiring freezes and furloughs could result in job losses for federal employees, according to Moody’s economist Dante DeAntonio. Economists surveyed by Wolters Kluwer anticipate a marginal increase in the average unemployment rate, rising to 4.3% in 2025 from 4% in the previous year.

Concerning business investment, enterprises are poised to contend with conflicting dynamics. While tax cuts extensions and regulatory relaxations, combined with reduced borrowing costs, are expected to bolster capital expenditure, uncertainties stemming from tariff and immigration policies could impede business investments, as highlighted by Zandi. The overall projection is for business investment to expand by 2.8%, a decrease from the estimated 3.9% growth in the previous year, according to the Wolters Kluwer survey.

On the monetary policy front, the Federal Reserve has adjusted its median forecast, reducing

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