How does Trump affect the U.S. economy in 2025? Goldman Sachs: Inflation "decreases first and then rises", the economy "weakens first and then strengthens"

Goldman Sachs predicts that by the end of 2025, the core PCE inflation rate in the United States (excluding tariff effects) is expected to decline to 2.1%, but with the addition of tariff effects, the inflation rate will be raised to 2.4%. The policies of imposing tariffs and expelling immigrants may drag down economic growth in early 2025, but in the long term, the implementation of tax reduction policies may boost consumption and investment. With the conclusion of the 2024 election, Trump returns to the White House, and the U.S. economy finds itself at another critical crossroads. Goldman Sachs believes that although Trump's tariff policy may raise inflation, as consumer spending and business investment pick up, the U.S. economy will gradually accelerate in 2025. Earlier, a report released by a team of analysts led by Goldman Sachs chief economist Jan Hatzius pointed out that a Republican landslide victory may bring policy changes in three key areas: raising import tariffs, tightening immigration policies, and extending and introducing more tax reduction policies. Although the short-term impact of these policies is significant, Goldman Sachs expects that in the long term, there will be no major changes in the trajectory of the U.S. economy or Federal Reserve monetary policy. "Inflation Decreases First, Then Increases" The impact of Trump's new policies may be most quickly reflected in inflation data. With wage pressures easing, inflation expectations returning to normal, Goldman Sachs predicts that by the end of 2025, the core PCE inflation rate (excluding tariff effects) is expected to decline to 2.1%, and with the expected tariff effects, the inflation rate will be raised to 2.4%. However, Goldman Sachs believes that this tariff-induced inflation increase is a one-time price level effect and will not prevent a sustained downward trend in inflation. On the monetary policy front, Goldman Sachs predicts that the Federal Reserve will continue to cut interest rates in the first quarter of 2025, then slow the pace of rate cuts in the later stages of the rate cutting cycle, with the final estimated rate at 3.25-3.5%, 100 basis points higher than the previous cycle. Goldman stated: "This is because we expect the FOMC to continue to raise its estimate of the neutral rate and non-monetary policy tailwinds, particularly large fiscal deficits and resilient risk sentiment, which are countering the impact of high interest rates on demand." "Economic Weakness Before Strength" Goldman Sachs notes that the impact of policy changes on U.S. GDP is expected to show mutual offsetting effects over the next two years. Specifically, the policies of raising tariffs and expelling immigrants may drag down economic growth in early 2025, but in the long term, the implementation of tax reduction policies may boost consumption and investment. Nevertheless, Goldman Sachs still expects U.S. GDP growth in 2025 to exceed market consensus expectations: a year-on-year growth rate of 2.4% in the fourth quarter and an annual economic growth rate of 2.5%. Analysts wrote in the report: "Consumer spending should remain a strong core support for growth, supported by robust growth in real income driven by the strong labor market and additional boosts from wealth effects." Even as the boom in factory construction subsides, business investment should pick up, driven by spending on new factory equipment, AI investments, tax incentives, increased confidence, and lower interest rates. Goldman Sachs also reiterated its recession forecast, stating that the probability of the U.S. economy entering a recession in the next 12 months remains at a low level of 15%, roughly at historical average levels. However, alongside optimistic forecasts, Goldman highlighted two risks facing the U.S. economy and markets: tariffs and debt. A universal 10% tariff could push inflation slightly above a peak of 3% and more heavily impact GDP growth. In addition, increasing debt and deficits, as well as high actual interest rates, could raise concerns in the market about the fiscal stability of the United States. This article is reproduced from "Wall Street See", edited by GMTEight: Li Fo.