Fed spending is up, inflation remains steady, and bond markets are already starting to react.
Bond vigilantes have begun pushing yields higher, anticipating that the Federal Reserve's recent interest rate cuts may have gone too far, too quickly.
Federal expenditures, which jumped 10.4% year over year in 2024, continue to fuel inflation, unlike tariffs that act as a one-time tax rather than an ongoing driver of higher prices.
A major factor that could lead to market volatility in 2025 is the uncertainty surrounding fiscal policy under Trump.
Federal spending patterns, the possibility of new tariffs, and questions about whether or not corporate taxes will remain low are all adding to market tension.
While potential deregulation and potential tax cuts could boost productivity, the immediate concern is how aggressively Trump will impose tariffs, which could sap the strength of consumer spending and spill over into markets.
Monetary policy is another flashpoint, with inflation showing signs of persisting even as the Federal Reserve attempts to ease. Meanwhile, geopolitical risks – from tensions between the US and China to conflicts in the Middle East and Europe – further complicate the outlook.