With the conclusion of the 2024 election, Trump returned to the White House, and the US economy once again stands at a crucial crossroads.

Goldman Sachs believes that despite Trump's tariff policies potentially raising inflation, with the recovery of consumer spending and business investment, the US economy will gradually accelerate in 2025.

Earlier, a report released by the analyst team led by Chief Economist Jan Hatzius of Goldman Sachs indicated that a Republican landslide victory may bring policy changes in three key areas: raising import tariffs, tightening immigration policies, and extending and introducing more tax reduction policies.

Although the short-term impacts of these policies are significant, Goldman Sachs expects that there will not be major changes in the long-term trajectory of the US economy or Federal Reserve monetary policy.

Inflation "first down then up"

The impact of Trump's new policies may be reflected most quickly in inflation data.

With the cooling of wage pressures and inflation expectations returning to normal, Goldman Sachs expects that by the end of 2025, the core PCE inflation rate (excluding tariff impacts) is expected to drop to 2.1%, while with the expected tariff impacts, the inflation rate will be raised to 2.4%.

However, Goldman Sachs believes that the inflation caused by tariffs is a one-time price level effect and will not prevent the continuous downward trend of inflation.

In terms of monetary policy, Goldman Sachs expects the Federal Reserve to continue cutting interest rates in the first quarter of 2025, then slow down the pace of rate cuts in the later stage of the easing cycle, with the final expected interest rate of 3.25-3.5%, 100 basis points higher than the previous cycle. Goldman Sachs says:

This is because we expect the FOMC to continue raising its estimates of the neutral rate and non-monetary policy tailwinds, especially large fiscal deficits and resilient risk sentiment, are offsetting the impact of high interest rates on demand.

Economic "before weak and after strong"

Goldman Sachs points out that the impact of policy changes on the US GDP is expected to show offsetting effects over the next two years. Specifically, policies such as tariff increases and immigration expulsion may drag on economic growth in early 2025, but in the long run, tax reduction policies may boost consumption and investment.

Nevertheless, Goldman Sachs still expects US GDP growth to surpass market consensus expectations in 2025: with year-on-year growth of 2.4% in the fourth quarter and annual economic growth of 2.5%.

Analysts wrote in the report:

Consumer spending should still be a strong growth pillar, supported by both solid labor market-driven real income growth and additional boosts from wealth effects.

Even if the factory construction boom recedes, commercial investment should rebound, driven by new factory equipment spending, AI investment, tax incentives, confidence boost, and lower interest rates.

Goldman Sachs also reiterated its prediction of a recession, believing that the probability of the U.S. economy entering a recession in the next 12 months remains at a low level of 15%, roughly the historical average. However, while optimistic about the forecast, Goldman Sachs emphasized the two risks facing the U.S. economy and market: tariffs and debt.

Among them, a 10% across-the-board tariff could push inflation slightly above a 3% peak and more heavily impact GDP growth. In addition, the increase in debt and deficits, as well as high real interest rates, could trigger market concerns about U.S. fiscal stability.

Editor/rice