The U.S. economy is on solid footing, and economists at Bank of America expect that to continue into next year.
In a research note on Monday, Bank of America's economics team led by Claudio Irigoyen forecast that the U.S. economy will grow at an annual rate of 2.4% in 2025, higher than the 2% growth rate in Bloomberg's latest consensus forecast.
That forecast hasn’t changed despite uncertainty over President-elect Trump’s economic policies, which included campaign promises of tariffs on imports, corporate tax cuts and immigration restrictions, all of which economists view as inflationary.
The proposals could also hamper economic growth and weigh on already ballooning federal deficits, further complicating the Fed’s interest rate path.
Higher interest rates combined with tough tariff policy would strengthen the dollar and have spillover effects on global financial conditions, "a significant shock not only to the U.S. economy but also to the rest of the world," Bank of America said.
“What we’re saying is that the U.S. imports a lot of things, but it doesn’t import recessions, it exports recessions,” Aditya Bhave, senior U.S. economist at Bank of America, said on Monday.
Buff added that any shift in U.S. trade policy "would pose greater risks to the rest of the world than to the United States" because the U.S. economy is more resilient than that of other developed countries.
Buff believes that recent domestic growth trends in the United States are "remarkable," and the data proves it. Consumer confidence has reached its highest level in 18 months. U.S. economic output has not been so strong since August 2022. Retail sales in October exceeded expectations, the unemployment rate continues to hover around 4%, and inflation, although bumpy along the way, has slowed to 2%.
"The situation in the world right now is that the U.S. economy has been outperforming for the last two years, so the U.S. is on a much stronger footing than other economies to deal with any potential disruption from trade policy," Buff said. "I don't think the new administration will lose sight of that."
Tariffs have been one of the most closely watched promises of Trump's campaign. Trump has pledged to impose across-the-board tariffs of at least 10% on all trading partners. If countries retaliate with tariffs, the resulting tit-for-tat trade conflict could push up long-term inflation.
However, Bank of America expects that the tariffs Trump ultimately imposes “will be lower than” the levels promised, and the bank is “moderately optimistic that a full-blown trade conflict can be avoided.”
Overall, "tariffs can be very disruptive both in terms of capital expenditure and exports," Buff said.
But given that the U.S. imports more goods and services from its trading partners than it exports, “tariffs, by definition alone, pose a far greater threat to those regions than to the U.S.,” Buff added.
Article forwarded from: Jinshi Data