Although modest economic growth is expected, the combination of factors could keep pressure on living standards and business prospects.
Economists raised their projections for US inflation next year due to concerns about tariffs and now expect a interest rate reduction by the Federal Reserve less than anticipated a month ago.
According to the latest monthly survey of economists carried out by the Bloomberg agency, the price index of underlying personal consumption expenditures, which excludes the volatile categories of food and energy, will advance 2.5% on average next year. This forecast for the inflation measure preferred by the Fed is higher than the 2.3% projection in last month’s survey.
While economists expect the Fed to cut rates on Dec. 18 for the third straight meeting, they now only expect three additional quarter-point cuts in 2025, at meetings in March, June and September. By the end of 2025, the federal funds rate is projected to be in a range of 3.5% to 3.75%.
“Tariffs are a big concern,” although some factors will help mitigate the impact, such as the substitution of US-made products and the strong dollar, said James Knightley, chief international economist at ING, quoted by the aforementioned agency. “Nevertheless, American consumers will feel pressure on living standards and American exporters will be hurt by retaliation. As such, an environment of higher inflation and lower growth seems likely,” the economist said.
The Donald Trump effect
Although recent business surveys revealed a rise in optimism about President-elect Donald Trump’s policies, including less regulatory burden, other elements such as higher tariffs and tax cuts that boost demand risk keeping inflation elevated.
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The Economist
The latest Bloomberg survey, conducted between December 11 and 16 with 83 economists, also showed upward adjustments to import growth during the first quarter, indicating a possible race by some companies to stockpile products ahead of a increase in rates, plus the possibility of a strike at East and Gulf Coast ports early next year.
Forecasters mostly held their 2025 employment projections steady, with estimated growth of 121,000 jobs on average, up from 126,000 the previous month.
Economists also modestly raised their economic growth projections for 2025. Forecasters see average gross domestic product (GDP) growth of 2.1% in 2025, up from 2% in last month’s forecast.
Source: Ambito
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