5 reasons to be optimistic about the US economy in 2025

In recent years, the US has been the bright spot of the global economy. Thanks to vibrant consumption, the world’s largest economy continues to recover after the pandemic. This country’s growth has continuously exceeded forecasts, despite inflation and interest rates remaining at high levels. The financial market also boomed. Hiring slowed, but layoffs were relatively low.

By 2025, analysts say there are many reasons to be optimistic about the economy, in the context of Donald Trump taking office as US President. “As in many years, the US economy is growing at a steady pace,” said David Kelly – global strategist at JPMorgan Asset Management.

There is no recession risk

In 2022, many organizations and economists predict that the US will almost certainly fall into recession. However, this scenario did not happen. The US Federal Reserve’s (Fed) fight against inflation caused the country’s growth to slow down, but not as sharply as initially feared.

Financial markets were also affected, but did not collapse. As for the job market, although cracks are beginning to appear, the unemployment rate is relatively low.

Unlike this time in 2021 and 2022, forecasts for 2025 indicate that the US is currently at no clear recession risk. “Only when there is some shock will the economy be pulled into recession. Currently, the fundamental factors do not indicate this risk,” Kelly said.

Gasoline prices are under control

Energy always has the potential to cause recession. In mid-2022, gasoline prices reached a record high of 1.32 USD per liter, threatening this economy.

But now, the price is much lower. Fears of supply disruption due to fighting in Ukraine and the Middle East have not materialized. Supply is even increasing, as the US is the world’s largest oil producer.

Fuel tracking company GasBuddy forecasts that gasoline prices in the US will decrease for the third consecutive year this year, to $0.80 per liter. This gives consumers confidence to spend, while keeping inflation figures low.

Wages increased higher than inflation

Many Americans are currently dissatisfied with having to pay more for groceries, car insurance or rent than during the pandemic. Although current prices are unlikely to return to 2019 levels, the increase has slowed significantly.

Besides, the wage growth rate is higher than inflation. This means that Americans’ real wages will help them keep up with the new price base and feel more comfortable spending. “The best thing we can do is bring inflation to target and keep it at that level, so that people enjoy real wage increases. This will help them have more confidence in the economy,” Fed Chairman Jerome Powell said in a press conference last month.

The Fed continues to reduce interest rates

To cool inflation, the Fed raised interest rates to a 40-year high. This causes interest rates for home loans, car loans, credit cards, business loans… to increase.

Last year, the Fed reduced interest rates three times, for a total of 100 basis points (1%). However, home loan interest rates have not yet lowered. This year, economists predict that the Fed may continue to loosen monetary policy. However, the rate of decline may be slower than last year.

Policies to create favorable conditions for businesses

President-elect Donald Trump clearly expressed his purpose of promoting the US economy. Although his agenda is controversial, especially its impact on inflation, some economists are excited about the prospect of Trump’s tax and regulatory reform.

He chose Tesla CEO Elon Musk to lead the Department of Government Efficiency (DOGE). This is the department that advises the government on how to reduce wasteful public spending and eliminate unnecessary procedures.

“It sounds unattractive, but this can drag up the performance of the economy,” commented Glenn Hubbard – former economic advisor to former President George W. Bush. He wants the new government to clarify many ambiguous financial regulations and speed up the process of granting construction permits in the country.

Risks

However, the US economy still faces risks that can quickly darken the economic picture. Mr. Trump’s agenda has many economists worried that it will cause inflation and cause businesses to reduce investment. “Import tariffs are bad for the economy,” said Stephanie Roth – chief economist at Wolfe Research.

However, Roth believes that Trump will not materialize all of his threats about import taxes. And these tariffs may not be applied until the end of the year. If this happens, Roth thinks growth could drop to 1% this year, equivalent to half the current level.

Mr. Trump’s promise to deport large numbers of illegal immigrants could also cause labor shortages in some industries, thereby driving up labor prices and wages.

The conflict between Mr. Trump and Powell will attract attention this year. Last month, when asked if he would resign if Mr. Trump asked, Powell replied “No.” “Anything that impacts Fed independence could affect market sentiment,” Roth said.

Another risk is that the US stock market could correct. Wall Street boomed for most of 2024, but ended the year down. A market correction, or falling into a bear market, can drag down consumer and investment confidence.

Events such as cyber attacks, pandemics or natural disasters are even more difficult to plan for. “The lesson of the 21st century is not to worry about what you can predict. But to worry about what you can’t predict,” Kelly concluded.