Chart of the month: US economic consensus 2025 less good than expected
US economic consensus 2025 less good than expected
Donald Trump’s November 2024 election victory sparked optimism for a revitalized US economy, with expectations of good GDP growth and a reduction in the hefty budget deficit inherited from the Biden administration. Equity markets soared after Election Day, signaling confidence in Trump’s economic agenda. The initial Bloomberg Consensus for 2025 projected GDP growth at 2.2%, with hopes of fiscal discipline to tackle the long-standing deficit challenge.
Yet, Trump’s tariff obsession, marked by “Tariffs Day” in April 2025, defied David Ricardo’s free trade principles, creating a lose-lose scenario. The updated 2025 consensus reveals a GDP growth drop to 1.4% and a core PCE inflation spike to 3.0%, reflecting expected short-term inflationary pressures. This tariff-driven approach has disrupted global trade, stifled growth, decreased corporate profits and raised consumer costs, undermining the early economic optimism.
The situation deteriorated further with the first draft of Trump’s “Big Beautiful Bill,” which unexpectedly widened the budget deficit disappointing investors who anticipated fiscal restraint. While tariff revenues may partially offset the deficit, the bill has hampered DOGE’s (Department of Government Efficiency) efforts to curb spending. Rising concerns over sustained borrowing have caught the attention of bond vigilantes, pushing US 30-year government bond yields to 5.0%.
The 2025 consensus now paints a less rosy picture: GDP growth at 1.4%, higher inflation (set to ease in 12-18 months), and a persistent -6.5% budget deficit. This has weakened the dollar, driven interest rates higher, left equity markets flat, and fueled uncertainty among consumers and corporations.
However, Trump has shown a willingness to pivot when needed, so we may see tariff reductions and a revised “Big Beautiful Bill” that better aligns with market expectations, potentially easing some of these economic strains.
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