A year of moderate growth is projected by the people at Goldman Sachs, a year that slows as it draws to a close. The financial giant predicts GDP of 2.4 percent overall in 2025, drawing back to 2.1 by December.
“The U.S. has been growing at a pretty healthy pace since the pandemic,” said Michael Murdoch, vice president and investment strategist for Goldman Sachs at the 2025 FMA Annual Meeting in late February in Phoenix. He said the United States’ unmatched productivity, which “dwarfs every other country’s” drives our success.
That productivity is also a better shield against a reversal of fortune. Goldman Sachs’ projects the U.S. to have a 20 percent chance at a recession in 2025, which is below the odds for the UK (30 percent) and the Eurozone (40 percent).
With consumers continuing to drive the economic bus in the U.S, the overall outlook should be positive. Consumers are relatively healthy in aggregate, though a deeper dive at the numbers indicates a significant imbalance. The Top 10 percent of earners represent 50 percent of spending, and the lower rungs on the economic ladder have not shared in the expansion of recent years.
Those consumers may be further tested in 2025, Murdoch said, as the bane of the past few years – inflation – is poised to rear its head again.
The U.S. entered 2025 with inflation continuing to ebb, coming down to just 2.7 percent, not far above the Federal Reserve’s target number of 2 percent. Were it to continue to decline, the Fed would likely respond with further interest rate cuts.
However, the early days of the new Trump administration, and the launch of a host of new tariffs, will result in an increase in inflation in the months to come.
“Tariffs are a threat to inflation expectations. Walking into this year, we were set to see inflation come down to pretty close to what the Fed was looking for. That story has changed materially with the election of Donald Trump and his threats of tariffs,” he said.
By late February, some were more than mere threats. The president had already enacted a new round of 25 percent tariffs on steel and aluminum. Several others were in various stages of development.
Goldman Sachs’ base case for tariffs, those that were in place before Trump took office and the new ones announced, lead to a 4.3 percent tariff rate, the highest level in 30 years. And, by Sachs’ measurement, every percentage point increase in the tariff rate has a corresponding increase in the rate of inflation expected, as well as a decrease in GDP.
“Every one percentage-point increases the price level by 0.1 percent and reduces potential growth by 0.05 percent because the uncertainty on hiring and investment decisions by businesses,” he said.
Where the tariff rate ultimately settles, in part because of the variety of ways President Trump uses tariff threats, is unknown. Some, like those imposed on China, should be expected to stick. Others may be in place for a while, but get pulled back at a later date. Finally, there are those being used as a negotiating tool, either to enact concessions on trade or for other policy matters.
For instance, Murdoch said, the tariffs announced on Canada and Mexico at the start of his second term are seen by many as a prod to get the countries to renegotiate the terms of the USMCA.
One set of tariffs unlikely to be rescinded is the Section 232 tariffs on steel and aluminum. And one day before Murdock addressed attendees, the president announced the possibility to roll copper products into Section 232 protection.
“President Trump is very focused on redomiciling U.S. capacity in key sectors, which includes metals and mining. He announced a Section 232 investigation for copper and prices spiked. He has said, and Commerce said, ‘It’s time to bring back U.S. copper capacity.’”
But he cautioned about the difficulty of pulling that off. A copper mine, such as the Resolution facility not far from the meeting site, takes a long time to bring online.
“The problem is you need to have conviction there will be [tariffs] for 15 to 20 years. There’s uncertainty that a tariff will actually stay on long enough to justify an investment,” he said. “It’s unlikely we’ll see material reshoring of this sort of capacity.”