Following are highlights of a look ahead at 2025 from Dr. Vince Malanga, president of LaSalle Economics:
Fiscal policy: Malanga expects an extension of the 2017 Tax Cut and Jobs Act, with modifications likely to encourage capital investment. Oil prices are projected to decrease, with fossil fuels prioritized over renewable energy sources like wind. A strong push for deregulation is anticipated, supporting a productivity revival and lowering inflation in 2025.
Monetary policy: The Federal Reserve’s mixed signals make predictions challenging. While rate cuts and quantitative tightening continue, assumptions about tariffs and immigration policy are adding complexity. If inflation trends downward, the Federal Open Market Committee (FOMC) may further reduce rates. A neutral rate of 4% to 4.5% is expected under current conditions, potentially dropping to 3% if fiscal policies align as anticipated. This would likely stimulate residential construction.
Politics: The Trump administration is expected to gain support for economic deregulation but will face challenges in streamlining the federal government. Efforts may focus on procurement efficiencies to achieve significant cost savings. While the Inflation Reduction Act will likely be scaled back, tariffs and deportations are anticipated to be more selective. A resolution of conflicts in the Middle East and Eastern Europe and improved relations with China are crucial assumptions for economic stability.
Economic outlook: If these assumptions hold, a temporary economic relapse from fiscal drag could occur. However, with nimble FOMC actions, economic growth may stabilize around 3%, supported by 2% inflation and a 4% ten-year Treasury yield. This growth would benefit corporate profits and aid in reducing the long-term deficit, potentially accelerating deficit reduction trends.
