Welcome to 2025. Strap in, kids; it’s going to be one wild ride. How much of President Trump’s agenda will actually come to fruition? Will he be able to reverse some of President Biden’s last-minute moves? How will Congress respond? What will happen with tariffs? Are we going to take over Greenland and the Panama Canal?
These questions and more will play out and shape our economy throughout the year and for years to come. So, with this, the first column of the year, I thought it was fitting to look into my crystal ball for 10 well-researched predictions for 2025:
1. The economy will stay relatively robust
GDP growth is expected to decrease from 2.8% in 2024 to about 2.5% in 2025. Slow growth in the workforce should keep GDP gains moderate for the long haul, but a full-blown trade war could slow growth. I am not expecting one; rather, I believe Trump is using the threat of big tariffs to win concessions from trade partners. However, there remains a risk that other countries retaliate and tariffs spiral out of control.
2. Inflation will not be completely curbed in 2025.
My guess is that inflation stats will look promising early in the year but perk up again in the second half. Why? If manufacturers, retailers and other companies are socked with import tariffs, they are expected to pass most of those costs to consumers through higher prices. And less immigration will likely mean a smaller labor supply that should keep wage growth elevated. Companies could pass their higher labor costs to consumers.
3. Fewer than expected interest rate cuts in 2025.
After lowering their key interest rate by a percentage point since September, Fed officials revised their median forecast from four quarter-point cuts to just two this year. Fed chair Jerome Powell said some officials may have factored in an inflation bump caused by the tariff and immigration plans. Fewer rate cuts would keep mortgage rates above where they need to be for a full housing rebound.
4. The housing market will see some progress.
Mortgage rates will ease slowly as the year unfolds, but probably won’t get below 6%, the magic number that would bring many more buyers into the market. What will help is supply should improve as more owners list their homes for sale. As a result, price gains should slow from 2024’s pace, though big price reductions outside of the weakest markets are unlikely.
5. The dollar will remain strong in 2025.
The U.S. economy will keep growing faster than most advanced economies, and fairly elevated interest rates will further support the dollar vs. other currencies. And if Trump does impose sweeping tariffs, that would likely push the dollar even higher.
6. Tariffs will not be as high as initially threatened.
During the campaign, Trump vowed to impose 60% tariffs on Chinese imports and 10% tariffs on shipments from all other countries to prod manufacturers to move production back to the U.S. Recently, he threatened 25% tariffs on Canada and Mexico and 10% fees on China to pressure those countries to curtail the flow of illegal drugs and unauthorized immigration to the U.S. I am guessing Trump will hit China with 20% to 30% tariffs and smaller levies on Canada, Mexico and parts of Europe as well as Asian nations such as Vietnam and Japan that could serve as alternative production sources to China.
7. Trump will moderate his immigration strategy.
Deporting up to 11 million migrants who lack permanent legal status is a logistical nightmare and probably impossible. Knowledgeable observers expect about 500,000 deportations per year along with tougher constraints on border crossings, lowering annual net immigration to about 700,000 from an average 2.5 million a year during President Biden’s term and 1.2 million historically.
8. We won’t see the fruits of tax cuts until 2026.
The tax reform Trump spearheaded in his first term does not expire until the end of 2025. Later this year, Trump and a Republican Congress are expected to extend lower tax rates for all income levels and lower the corporate tax rate from 21% to 15%. Trump also could loosen regulations for the oil and gas industry, banks and tech companies as early as this year but mostly in 2026, spurring more investment.
9. The bulk of consumer spending will remain at the high end.
This demographic has benefitted from rising stock and home prices. Low- to middle-income people will continue to struggle with credit card debt and high delinquencies, though lower interest rates should ease their burden somewhat. Yet by raising prices, tariffs will reduce consumers’ buying power and purchases.
10. Businesses will face conflicting forces.
Extending the tax cuts and easing regulations should combine with lower borrowing costs to boost capital spending. And a recent factory building boom spawned by federal subsidies for chip and clean-energy production should spur purchases of equipment to fill the plants. At the same time, the uncertainty generated by the tariff and immigration policies could slow business outlays.
And if I’m wrong, it wouldn’t be the first time.
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