Economists believe that given stubborn inflation and the prospect of price pressures not significantly decreasing under President Trump's leadership, the Federal Reserve will take more cautious interest rate cuts next year.

According to the latest monthly survey of economists by foreign media, the inflation indicator favored by the Federal Reserve is expected to be slightly higher than economists' expectations last month in the next year. They expect the so-called core PCE price index (excluding volatile food and energy categories) to average a 2.3% increase next year, higher than the 2.2% in last month's survey.

Following recent strong inflation data, economists have also raised their inflation forecasts for the fourth quarter of 2024, which helps explain the Federal Reserve's more cautious stance. While forecasters still generally expect the Federal Reserve to make a third consecutive rate cut next month, they predict policymakers will keep borrowing costs unchanged in January next year.

For the whole of 2025, economists now expect the federal funds rate to range from 3.25% to 3.5%, one less rate cut than their forecast a month ago. Investors and economists have generally lowered their expectations for the extent of rate cuts.

Federal Reserve officials have also stated that as long as the labor market remains resilient and the economy continues to grow strongly, they are not in a hurry to continue cutting interest rates after each policy meeting.

Although some of Trump's policies may benefit businesses, some of his proposed policies – including higher tariffs and tax cuts to stimulate demand – could potentially reignite inflation. The President-elect's proposals include imposing tariffs of up to 20% on all imported goods, 60% tariffs on Chinese goods, and large-scale expulsion of illegal immigrants.

Chief economist Kathy Bostjancic of Nationwide Mutual Insurance Co. said, "We have only moderately raised our inflation forecast for 2025 to reflect Trump's tariff policy. We believe it is too early to assume any other changes in tariff and immigration policies. We need to wait and see what proposals the new government puts forward and what will ultimately be implemented."

Foreign media's latest survey of 83 economists from November 15th to 20th also shows that economists have raised their forecast for US first quarter import growth next year, highlighting the situation where companies are stocking up before the tariff increase.

Economists have also raised their forecast for economic growth in 2025. Forecasters believe that the US Gross Domestic Product (GDP) will average 2% growth in 2025, higher than the 1.8% forecasted last month. This reflects economists' stronger expectations for consumer spending.

Chief International Economist at ING, James Knightley, mentioned that a smooth political transition and a lower tax environment mean that companies that had postponed investment and hiring plans may now be ready to 'put money in,' which has led us to moderately raise our growth forecast for the first half of 2025 in the US.

Economists believe that the likelihood of the US falling into an economic recession next year is only 25%, unchanged from last month, the lowest since March 2022. They also expect the average non-farm employment to increase by 0.126 million people in 2025, compared to the estimated growth of 0.172 million people this year.

Editor/rice