Goldman Sachs Chief Economist Jan Hatzius has presented an optimistic outlook for the U.S. economy following Donald Trump’s inauguration as the 47th president, describing current conditions as hitting a “sweet spot” of robust growth alongside gradual disinflation.
The investment bank projects fourth-quarter GDP growth of 2.6% and anticipates similar expansion through 2025, positioning their forecast half a percentage point above the Bloomberg consensus. This optimistic stance stems from expectations of strong growth in real disposable personal income and sustained business investment throughout 2025.
The positive sentiment is echoed by renowned investor Stanley Druckenmiller, who highlighted the stark contrast between the previous administration and Trump’s approach to business. Speaking to CNBC, Druckenmiller noted that corporate executives are displaying attitudes ranging from relief to enthusiasm about the change in leadership.
On the monetary policy front, Goldman Sachs has revised its interest rate predictions. The firm now anticipates two quarter-point rate cuts in 2025, scheduled for June and December, followed by an additional reduction in 2026, targeting a terminal rate of 3.5-3.75%. This marks a shift from their October forecast, which had projected a lower terminal rate of 3.25-3.5%.
Regarding the Federal Reserve’s immediate plans, CME’s FedWatch indicates minimal likelihood of a rate adjustment at the January 28-29 FOMC meeting, with significant movement not expected until June. Hatzius emphasized that while rate cuts appear warranted given ongoing disinflation, they’re not crucial considering the economy’s current strength.
A key focus for markets will be the implementation of Trump’s tariff agenda. Goldman Sachs anticipates announcements of substantial tariff increases on Chinese imports, averaging 20 percentage points, within the next two months. Additional aggressive tariffs are expected on European automobiles and Mexican electric vehicles. However, the prospect of an across-the-board tariff appears to be diminishing, while targeted tariffs on critical goods become more probable.
Bank of America Securities analysts Ebrahim Poonawala and Brandon Berman suggest that Wall Street is seeking confirmation that optimism surrounding increased customer activity, sparked by Trump’s victory and Fed rate cuts, is materializing. They anticipate this uptick will be led by merger-and-acquisition activity and initial public offerings, with loan demand expected to rebound by mid-2025.
The inflation outlook remains a focal point, with Hatzius noting its downward trajectory, though monthly volatility and post-pandemic seasonal adjustment challenges occasionally obscure this trend. The Federal Reserve concluded 2024 with its third rate cut, and while further reductions appear likely, the timing and pace remain uncertain.
Wall Street analyst Stephen Guilfoyle expressed criticism of former Treasury Secretary Janet Yellen’s handling of federal debt duration, suggesting her approach left unnecessary challenges for her successor. Meanwhile, Bank of America analysts predict potential for
wider-than-expected net interest margin expansion, supported by a positive yield curve slope, and increased merger and acquisition activity under what they expect to be a more relaxed regulatory environment.
Hatzius concluded that while the base case for rate cuts remains moderate, downside risks exist, particularly if economic data deteriorates or market sentiment shifts significantly. He also noted that while tariffs may create market volatility, their ultimate impact on Fed policy could be more nuanced than commonly believed, drawing parallels to the 2018-2019 period when trade tensions actually led to multiple rate reductions.