Goldman Sachs expects inflation to rise during Trump's era!

Goldman Sachs' Chief Economist, Jan Hatzius, projects that the U.S. economy will grow by 2.5% in 2025, exceeding the consensus estimate of 2.1%. This optimistic outlook is attributed to challenges the Trump administration may face in implementing drastic cuts to immigration and federal spending.

Hatzius noted that while net immigration may decrease to levels slightly lower than those before the COVID-19 pandemic, it will not experience a sharp drop that would cause significant negative economic effects. He also suggested that the Trump administration will likely fall short of delivering on its promise of $2.5 trillion in annual spending cuts.

Experts from Goldman Sachs believe these cuts will be limited, focusing on areas such as Affordable Care Act subsidies and programs related to the Inflation Reduction Act. Hatzius further projected that the budget deficit, which stood at 6.4% of GDP in 2024, may see a slight reduction to around 6% or roughly $250 billion.

In terms of trade policies, Hatzius forecasted that tariffs would be the most impacted area, with the Trump administration potentially increasing the average tariffs on Chinese goods to 20%. Additional tariffs could be imposed on European cars and electric vehicles produced in Mexico.

Hatzius emphasized that Trump's focus on the financial markets could temper more stringent economic policies. He concluded by stating that while stricter tariffs could be introduced, a negative market reaction might lead to a reversal of such policies.