'US economy is in a good place' and should beat expectations in 2025: Goldman Sachs

(TNND) — Goldman Sachs researchers expect our economy to beat expectations next year.

Goldman Sachs expects 2.5% growth in 2025 for the U.S. gross domestic product, which is a broad measure of the economy.

That’s a more bullish outlook than the 1.9% consensus growth forecast from economists surveyed by Bloomberg, according to Goldman Sachs.

“The US economy is in a good place,” David Mericle, chief U.S. economist in Goldman Sachs Research, said in an article published by the investment banking, securities and investment management firm. “Recession fears have diminished, inflation is trending back toward 2%, and the labor market has rebalanced but remains strong.”

Goldman Sachs also forecasted the global GDP to expand by 2.7% next year and the S&P 500 stock index to have its third straight year of gains.

“I didn’t need any convincing. I mean, I’ve been sort of on the soft-landing side for a while,” Colorado State University economist Stephan Weiler said Monday of the fairly optimistic forecast from Goldman Sachs.

Weiler said 2.5% GDP growth is healthy, though possibly a bit soft by historical standards.

But there is no magic number for GDP growth.

Everyday folks feel the good and bad of the jobs market and inflation, he said. And the GDP sort follows that.

“The idea is that the GDP is good if the job market is churning out maybe a quarter million jobs and inflation stays around 2%,” Weiler said. “Whatever GDP number that is that produces those results is a good GDP.”

The U.S. economy is mostly driven by consumer spending.

Goldman Sachs said policy changes coming out of Washington will have an impact, with Donald Trump entering the Oval Office and Republicans controlling both chambers of Congress.

But analysts said they don’t expect Trump’s policies to substantially alter the trajectory of the economy or U.S. monetary policy.

Trump has talked a lot about imposing new or higher tariffs, which could raise prices for Americans.

Tariff increases on imports from China and on autos may raise the effective tariff rate by three to four percentage points, according to Goldman Sachs.

A tariff is something that is paid for by the importing company, which then must either absorb the extra cost or pass it along to consumers.

James Knightley, ING’s chief international economist, told The National News Desk last week that the U.S. imported $3.1 trillion of goods in 2023.

There will be some substitutions made by American businesses and consumers to soften the blow if there are higher tariffs, Knightley said.

“But America just doesn’t have the manufacturing base to fulfill that full $3.1 trillion of stuff that we all keep buying,” Knightley said. “So, there’s inevitably going to be a cost-of-living erosion here or, a cost-of-living hit, spending power erosion.”

Goldman Sachs said immigration numbers could fall under the Trump administration, which could serve to throttle economic growth.

A surge in immigration over the last few years boosted labor force growth, which contributed to economic growth, according to Goldman Sachs.

A tightening job market could replace the role of elevated immigration, the analysts said.

The 2017 tax cuts are expected to be fully extended instead of expiring, Goldman Sachs said. And analysts expect modest additional tax cuts.

“The drag from tariffs and reduced immigration will likely appear earlier in 2025, while tax cuts will likely boost spending with a longer delay,” Mericle said in the Goldman Sachs article.

Policy changes are expected to have roughly offsetting effects on economic expansion over the next two years, Goldman Sachs said.

Weiler said Trump’s tax reduction policy could increase the national debt, putting pressure on treasury bonds that are closely tied to mortgage rates. That could send mortgage rates higher, with housing affordability already a big problem for a lot of folks.

The Federal Reserve raised its benchmark interest rate 11 times between 2022 and 2023 as a lever to tame inflation.

Inflation has cooled enough to allow the Fed to start moving rates in the other direction, with cuts already in September and November.

Goldman Sachs said in its outlook that the Fed is likely to keep cutting rates.

But mortgage rates don’t move in lockstep with the Fed’s benchmark interest rate the way some other consumer borrowing rates do, such as credit card rates.

Investors in mortgage-backed securities are also focused on the returns they can get from the safer 10-year Treasury, which could stay high with increasing government debt.

Weiler said the Fed always makes data-driven decisions, but it’s likely to be extra aware of its independence from politics under the Trump administration, given his comments about influencing the central bank’s decisions.

Goldman Sachs’ forecast might come true, given the tailwinds for the economy.

“The tailwind is the economy itself has been remarkably resilient,” Weiler said.

The uncertainty about how the policies of the next administration will play out, specifically tariffs and immigration, is where the challenges might come into play, Weiler said.

If tariffs are raised, retaliatory tariffs from other countries could “be just as painful” on our economy, he said.

“I’m always a little nervous about these crystal balls,” Weiler added about economic forecasts.

A new jobs report is coming this Friday, followed by an inflation report next week.

The economy added 2.17 million jobs over the last 12 months, labor economist Aaron Sojourner said when the last jobs report was released at the beginning of November. That was more than 2019, he noted.

The labor market remains strong, he said. But Sojourner previously told The National News Desk that it has become harder to find a job, with the hiring rate seeing a steady decline.

The Fed holds its last monetary policy meeting of the year from Dec. 17-18.