Economists believe that, given stubborn inflation and the prospect of price pressures not significantly decreasing under President-elect Trump's leadership, the Federal Reserve will adopt more cautious measures for interest rate cuts next year.
According to the latest monthly survey of economists by foreign media, the Federal Reserve's preferred inflation measure is expected to be slightly higher than economists' expectations from last month over the next year. They anticipate that the so-called core PCE price index (excluding the more volatile food and energy categories) will rise by an average of 2.3% next year, up from 2.2% in last month's survey.
After 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. Although forecasters still generally expect the Federal Reserve to implement a third consecutive rate cut next month, they anticipate that policymakers will keep borrowing costs unchanged in January next year.
For the entirety of 2025, economists now expect the federal funds rate to be in the range of 3.25% to 3.5%, which is one less than their prediction a month ago. Investors and economists have generally lowered their expectations for the extent of interest rate cuts.
Federal Reserve officials have also indicated that as long as the labor market remains resilient and the economy continues to grow strongly, they are not in a hurry to continuously cut interest rates after each policy meeting.
Although Trump's policies may be favorable for business, some of his proposed policies—including higher tariffs and tax cuts to stimulate demand—could potentially reignite inflation. Proposals from the president-elect include imposing tariffs of up to 20% on all imported goods, 60% on Chinese goods, and large-scale deportations of illegal immigrants.
Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Co., stated, "We have only made a modest upward adjustment to our inflation forecast for 2025 to reflect Trump's tariff policies. We believe it is still too early to assume any other changes in tariff and immigration policies; we need to wait and see what the new government proposes and what is ultimately implemented."
A recent survey of 83 economists conducted by foreign media from November 15 to 20 also showed that economists have raised their forecasts for U.S. import growth in the first quarter of next year, highlighting that companies are stockpiling inventory ahead of rising tariffs.
Economists have also revised their forecasts for economic growth in 2025 upward. Forecasters believe that the U.S. GDP will grow by an average of 2% in 2025, up from last month's forecast of 1.8%. This reflects stronger expectations for consumer spending.
James Knightley, chief international economist at ING, stated that a smooth political transition and a lower tax environment mean that companies that have delayed investment and hiring plans may now be ready to "start putting money in, which has led us to moderately raise our growth forecast for the first half of 2025 in the U.S."
Economists believe that the likelihood of the U.S. entering a recession next year is only 25%, unchanged from last month, marking the lowest level since March 2022. They also expect non-farm payrolls to grow by an average of 126,000 in 2025, down from an expected increase of 172,000 this year.
Article reposted from: Jinshi Data
