Goldman Sachs chief economist Jan Hatzius spoke on Thursday:
- forecast a 2.5% growth rate for the US economy in 2025, exceeding the consensus estimate of 2.1%
- attributes this positive outlook to his belief that the Trump administration will face challenges in implementing drastic cuts to immigration or the federal budget
More (bolding is mine):
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Hatzius predicts that net immigration will slow to “a little below what it was pre-pandemic,” but not dramatically, limiting any major negative economic impact.
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Despite promises of $2.5 trillion in annual reductions, Musk will fail. Hatzius expects only modest spending cuts, particularly in areas like Affordable Care Act subsidies and Inflation Reduction Act incentives. He estimates the deficit, which was 6.4% of GDP in 2024, could be reduced to about 6% of GDP, equating to roughly $250 billion.
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- Hatzius sees tariffs as the area where Trump’s administration might make the most significant changes, given the president’s long-standing focus on trade.
- He predicts average tariffs on Chinese goods to reach 20%, with additional targeted tariffs on European automobiles and Mexican-made electric vehicles.
- These measures could reduce GDP growth by 0.4 percentage points in 2025 and raise inflation from 2.1% to 2.4%, though not enough to halt further Federal Reserve rate cuts.
Hatzius says Trump’s focus on the stock market will cause a trimming of extreme policies, such as universal 10%-20% tariffs or a 60% tariff on Chinese imports, noting,
- “Trump appeared to watch stock-market reactions to his policies very closely” in his first term and often reversed course if markets reacted negatively.
- “It’s certainly possible we see a more significant tariff announcement than what we have in our baseline,” he said, “but then, if the reaction is negative, there also could be backtracking.”
Hatzius
This article was written by Eamonn Sheridan at www.forexlive.com.
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