Key Takeaways:
- The Federal Reserve will likely make measured rate cuts, from Thanksgiving 2024 through the end of 2025, reducing the federal funds rate by 0.75% over the next year.
- Anticipated tax reforms aim to stimulate economic growth, with early optimism likely driving consumer spending and business investment ahead of full implementation.
- Increased tariffs may boost domestic production in the near term but could lead to higher consumer prices and inflationary pressures, requiring strategic adjustments by businesses and consumers.
The 2024 election results mark the start of a new chapter for the U.S. economy, with major policy changes set to influence everything from tax structures and trade dynamics to inflation and interest rates.
President-Elect Trump will be stepping in with a bold agenda, focusing on tax cuts, deregulation and increased tariffs. These initiatives aim to spur economic growth and industrial production, but they also introduce new dynamics that could impact consumer prices, hiring trends and more. As the new administration’s policies take shape, their ripple effects will be felt across industries and households.
In this article, we’ll explore how policy changes are expected to unfold and what they mean for the economic outlook in 2025 and beyond.
Note: The insights in this article are based on current information and projections. While they provide an overview of anticipated trends, they should not be considered financial advice. We encourage readers to consult with a Comerica advisor for tailored guidance as they navigate these economic changes.
Interest Rates: Modest Cuts Expected
The Federal Reserve is expected to take a measured approach to rate cuts in 2025, reducing the federal funds rate by 0.75% over the year. While this signals some easing, the cuts are less aggressive than previous cycles due to steady economic growth and inflationary pressures.
Long-term yields, such as the 10-year Treasury, are forecast to average between 4.25% and 4.75%, which will influence borrowing costs for businesses and individuals. This balanced approach reflects the Fed’s goal of maintaining economic stability while mitigating inflation risks.
For borrowers, modest rate cuts could lower the cost of financing. Businesses may find opportunities to secure more favorable terms for expansions or capital projects, while consumers could see slightly reduced costs for mortgages, auto loans and personal loans.
Investors will also feel the effects of these shifts. Bond yields, while stable, may become less attractive compared to other investment options, potentially driving interest toward equities or alternative asset classes.
Overall, with rates continuing to trend higher than pre-pandemic levels, affordability may remain a challenge in sectors such as real estate, requiring careful planning and strategic adjustments.
The Fed is expected to reduce the federal funds rate by 0.75% in 2025.
Tax Policies: Stimulus Through Cuts
A cornerstone policy of the new administration is a significant tax overhaul. Anticipated tax cuts aim to enhance disposable incomes for consumers and boost corporate profits, creating a ripple effect across the economy.
While the full implementation of these cuts will likely come in 2026, their impact will be felt earlier, as optimism around increased spending and investment drives economic activity in 2025. Businesses may see enhanced cash flow, and higher consumer confidence could further stimulate demand in key sectors.
Tariffs: Short-Term Gains, Long-Term Risks
President-Elect Trump has made it clear increased tariffs are central to his strategy for boosting domestic industrial production and reducing reliance on foreign imports. This policy is likely to benefit near-term industrial production, but also carries the risk of higher consumer prices, particularly for imported goods.
Inflationary pressures could become a central challenge in 2025, requiring careful navigation by both businesses and consumers. Companies may face rising input costs, particularly those that depend on global supply chains. For many, this could mean re-evaluating sourcing strategies, exploring local suppliers or passing costs onto consumers through higher prices.
At the consumer level, cost increases could dampen discretionary spending, particularly for middle-income households.
Stay ahead of tariff impacts by preparing your business and finances today.
Economic Growth: Renewed Momentum
The combination of tax cuts, deregulation and heightened business optimism is projected to drive real GDP growth in 2025. Businesses, buoyed by a more business-friendly regulatory environment, are expected to increase hiring and investment, further fueling economic activity.
Early indications suggest that affluent consumers and enterprises will act on renewed confidence, contributing to gains in spending and production well before policy changes take effect. This environment creates fertile ground for growth but may also highlight disparities in sectoral performance as industries adapt at different paces.
Business Optimism: Confidence Sparks Action
Initial surveys of business leaders reveal a notable surge in optimism following the 2024 election. This renewed confidence is likely to translate into tangible actions, such as increased hiring, capital investment and expansion efforts in early 2025.
Market enthusiasm, driven by anticipation of tax benefits and deregulation, may bolster consumer confidence and drive job creation. However, this optimism will require sustained follow-through on policy promises to ensure long-term stability and growth.
Business leaders are entering 2025 with a high level of confidence.
Housing Market: A Mixed Outlook
The housing market faces a dual narrative in 2025. While higher interest rates may slow home sales in the short term, a rebound is anticipated in 2026. Factors such as pent-up demand, tax cuts increasing purchasing power and wealth effects from a growing economy could reignite the market.
For now, affordability challenges may weigh on homebuyers, but builders and lenders are already positioning for a stronger recovery in the following year. This transitional period will likely see regional variation, with some markets rebounding faster than others.
In Summary
The 2024 election has ushered in a new era of economic policies that will shape the U.S. landscape in 2025 and beyond. Key shifts include modest interest rate cuts, significant tax reforms and increased tariffs that balance industrial growth with inflationary pressures.
Economic growth is expected to gain momentum, fueled by renewed business optimism and consumer confidence, while the housing market prepares for a rebound following short-term challenges.
As you plan for the year ahead, connect with a Comerica advisor to discuss how these changes could impact your financial strategies and explore opportunities to stay ahead in a shifting economy.
