In the post-pandemic cycle, the economic performance of the U.S. has led the world. A strong labor market has fueled unflappable consumer demand, leading to steady economic gains.
This is not to suggest all has been perfect for the American economy. Rate-sensitive sectors like home and auto sales have performed below their potential. The office sector remains impaired by the lasting shift to remote and hybrid work. Home purchases are out of reach for many aspiring buyers, and slow hiring has more recently frustrated some job seekers. Inflation calmed, but higher prices take time to feel normal. The data do not support the conclusion that the nation had fallen into recession, but for many, the economy was not working well.
The world’s best-performing economy faces a new set of challenges.
Economic dissatisfaction compelled many voters to seek a change in the 2024 presidential election, bringing Donald Trump back into office. His agenda is still taking shape. The prospects of stable tax rates and lighter regulation will support risk appetite, while greater defense spending will add to economic growth.
Prospects for 2025 are encouraging. Rates of inflation are much improved but settling to an above-target range. Labor markets continue to gain at a sustainable pace. The Federal Reserve is positioned to continue cutting rates, likely moving to an intermittent cadence to ensure inflation does not reignite.
However, stringent policies around trade and immigration will raise the risks of inflation, labor shortages and lower output. Wider deficits will keep interest rates elevated, adding to borrowing costs for all types of debt. The Fed may need to change course to be faithful to its mandate.
The U.S. is poised to bring momentum into the new year. The nation has shown great resilience throughout this cycle, and it can continue to grow through a new bout of uncertainty.
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