Since Donald Trump's election victory, concerns over inflation have intensified, and uncertainty about his stance on tariffs, taxes, and immigration has grown. In this environment, the Federal Reserve has shifted to a wait-and-see mode, while markets closely analyze incoming data for insights into the U.S. economic trajectory.

U.S. Economic Growth: A Strong Finish to 2024?

According to a report the U.S. Bureau of Economic Analysis will release on Thursday, the U.S. gross domestic product (GDP) likely grew by 2.3% in Q4 2024, suggesting an average annual growth rate of around 2.5%.

If the figures meet or exceed expectations, it would indicate that the U.S. economy ended 2024 on a strong note despite high interest rates.

• Such resilience would reinforce the view that recession risks remain low.

• However, the economic outlook remains uncertain, with policy decisions, inflation concerns, and global trade risks playing key roles.

Diverging Views on Trump's Economic Impact

Market analysts and economists hold differing opinions on how Trump's policies will shape economic growth.

Bearish Perspective: Risks to Growth

Some analysts caution that Trump's policies could accelerate inflation while simultaneously slowing growth.

• Pantheon Macro predicts GDP will slow to 2% in Q1 2025.

• Point72 forecasts a further decline to 1.5% in H2 2025.

Moderate Perspective: Offsetting Factors

Other economists believe that positive tailwinds—such as fiscal stimulus and business-friendly policies—could offset these risks.

• Goldman Sachs forecasts that U.S. economic growth will average 2.5% in 2025.

• The Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, is projected to decline to 2.5% by year-end—in line with the Fed's December projections.

Market Sentiment: Cautious Optimism

• Investor confidence in U.S. economic resilience has grown in recent weeks.

• However, uncertainty over Trump's policy moves continues to weigh on market sentiment.

Markets Drift as Policy Uncertainty Clouds Outlook

Uncertainty regarding the new administration's policies is already impacting economic data, raising concerns about future growth expectations.

Economic Indicators Showing Weakness

Since the start of the year, several key economic reports have pointed to slowing momentum:

• Factory orders have declined.

• The trade deficit has widened due to pre-emptive demand ahead of tariffs.

• Consumer spending has weakened.

• Industrial production has contracted.

• Service sector activity, the backbone of the U.S. economy, has slowed.

Revised Growth Projections

• The Atlanta Fed's GDPNow model initially projected a 3.9% growth rate for Q1 2025.

• However, as weaker data emerged, the forecast dropped to 2.3%.

Key Market Concerns

Investors and businesses are grappling with three major policy uncertainties:

1. Federal Spending Cuts – How strict will Trump be?

2. Tariffs – How serious is he about trade restrictions?

3. Immigration – How aggressive will he be on deportations?

The lack of clarity on these policies is fueling market volatility, leading investors to scrutinize each economic report for guidance.

Looking Ahead: Trump’s Policy Moves Will Steer the Markets

Tariffs and Trade Tensions

• Tariffs on Canada and Mexico are set to take effect in March.

• 25% duties on steel and aluminum imports will be implemented shortly after.

• Additional critical tariff measures are expected in April, though details remain unclear.

• Potential trade war concerns remain a major risk factor.

Federal Spending Cuts and Job Market Impacts

• Federal workforce reductions could affect up to 300,000 employees, with ripple effects possibly impacting 1 million jobs.

• Weekly jobless claims and payroll data will be closely watched for signs of labor market strain.

Immigration Policy and Economic Effects

• Net migration is expected to decline to 750,000, just below pre-pandemic levels.

• If Trump imposes aggressive immigration restrictions, the effects on economic growth and inflation could be more pronounced.

Market Implications: What’s Next?

Forex and Safe-Haven Assets

• Bullish sentiment on the U.S. dollar remains, but volatility is expected.

• Gold may attract safe-haven flows if uncertainty increases.

Stock Market Outlook

• If U.S. growth concerns intensify, capital could shift from U.S. equities to emerging markets, particularly in Asia.

Key Takeaways

• U.S. GDP data on Thursday will provide key economic insights.

• Inflation data on Friday will be critical for market direction.

• Clarity on Trump’s policy decisions is needed for investors to gauge future risks accurately.

Conclusion: Trump's policies have introduced multiple layers of uncertainty into the U.S. economic outlook. While markets remain cautiously optimistic, traders will continue monitoring key developments as they unfold.