Goldman Sachs: Questions and expectations about the state of the US economy in 2025

Goldman Sachs has published an economic memo that highlights the key questions that will shape the US economy in 2025.

The report, published on Investing, provides a comprehensive analysis of several important economic issues such as economic growth, consumer spending, inflation, and interest rates, with a focus on the impact of economic and political policies on the overall landscape.

Will GDP growth exceed expectations?

Goldman Sachs expects US GDP growth to reach 2.4% in 2025, beating the consensus forecast of 2.0%.

The forecast is based on strong domestic demand, driven by investments in promising sectors such as artificial intelligence and clean energy, as well as federal incentives such as the Inflation Reduction Act.

Sectors that benefit from these investments, such as technology and clean energy, are expected to play a significant role in driving economic growth.

Will consumer spending continue to hold up?

Yes, Goldman Sachs expects consumer spending to grow by 2.3% in 2025, driven by factors such as rising real incomes, job creation in the labor market, and wealth effects from improving stock markets.

The return of consumer confidence after years of high inflation will boost the purchasing power of American households, supporting economic activity.

Will the job market continue to slow?

Goldman Sachs doesn’t expect the labor market to slow significantly.

Instead, it expects the unemployment rate to fall slightly to 4% by the end of 2025.

The bank attributes this stability to increased demand for labor in sectors such as technology and services, as well as a decline in the supply of immigrant workers as a result of the more restrictive policies under Trump.

Will core inflation fall below 2.4%?

Goldman Sachs expects core inflation to continue to decline to 2.1% by the end of 2025.

The bank attributes this forecast to easing wage pressures and a decline in inflation resulting from supply chain disruptions.

However, potential changes in tariff policies could still affect this forecast.

Will the Federal Reserve cut interest rates?

Goldman Sachs expects the Fed to cut interest rates three times in 2025, in March, June and September, reflecting its confidence in the economy’s ability to control inflation.

This will provide additional support to economic growth.

Will the Fed raise its estimate of the neutral rate?

The Fed is expected to raise its estimate of the neutral rate (the rate that keeps inflation stable) to 3.25% or higher.

The increase reflects expectations of a recovery in key consumer and investment sectors.

Will Trump try to fire the Fed Chairman?

Goldman Sachs rules out former President Donald Trump trying to fire Federal Reserve Chairman Jerome Powell, based on previous experiences in his first term.

This is because the law only allows the removal of a Fed chairman for legitimate cause, which is difficult to achieve.

Will immigration policies change?

Net migration is expected to fall to about 750,000 people per year, as the Trump administration tightens policies.

This decline could impact some sectors that rely heavily on immigrant labor.

How will trade tensions and tariffs affect?

Goldman Sachs expects tariffs on Chinese imports to increase, but not to impose a blanket tariff on all imports.

These policies could lead to trade disruptions and increased costs for businesses and consumers.

However, the overall impact will depend on how China and other countries react to these policies.

What are the challenges related to the federal budget?

Goldman Sachs expects the federal deficit to remain high through 2025, as tax cuts and increased defense spending offset any attempts to rein in spending.

However, the bank expects a moderate increase in revenues from tariffs, which could help reduce the deficit temporarily.

Goldman Sachs concluded, that the year 2025 represents a period of relative stability for the US economy, despite significant challenges related to trade tensions, inflation, and immigration policies.

Despite potential risks, positive expectations for economic growth and consumer spending support the US economy’s ability to adapt and grow in the future.