Ever since humans started walking upright, they've wanted to know what's next.
Whether it's astrology, tarot cards, Ouija boards, tea leaves, crystal balls or Pablo the octopus predicting the World Cup, people need to know the future and they need to know it right now.
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As we approach 2025, economists are trying to assess what could happen in the next 12 months.
Without a doubt, one of the most important events of the year, perhaps the most important, will begin on January 20, when Donald Trump returns to the White House for a second term.
“Based on the history of Trump's first term, an unbiased assessment of the four pillars of Trump's current economic platform: higher tariffs and tough anti-China policies; extension of the 2017 tax cuts; deregulation and increased government efficiency; and deportation of immigrants…suggests that there will be offsetting advantages and disadvantages,” the Hoover Institution said in a december report.
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The Washington, DC-based research center said the net economic impacts likely fall somewhere between the most pessimistic forecasts and the optimistic scenario envisioned by Trump's team, adding that “there are many key uncertainties and risks.”
Trump's team is finalizing an aggressive series of immigration executive orders that are expected to be released just hours after the president-elect takes the oath of office. CNN reported.
All of this has Wall Street revamping models, crunching numbers and forecasting feverishly, including Vanguard's research team.
The future of the United States depends on the White House
Planning includes U.S. Immigration and Customs Enforcement raids in major metropolitan areas, sending more Pentagon resources to the U.S. southern border, imposing additional restrictions on who is eligible to enter the U.S. US and roll back Biden-era policies, CNN said, citing two sources. familiar with the discussions.
“The market is already reacting to Bloomberg's report that Trump will announce that cryptocurrencies are a 'national priority,'” the analyst said. James “Rev Shark” DePorre in a post on TheStreet Pro. “bitcoin (will go) “It has pulled back above the key $100,000 level on that news, and miners are also rallying.”
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DePorre said the big question about Trump's first day in office will be priorities.
“We know that tariffs will be a key issue for the market,” he added. “But there is very little clarity about how the new administration will proceed. While there will be a lot of talk about tax policy, immigration and other issues, there is very little clarity so far about what initial steps will be taken.”
Vanguard publishes its market forecast for 2025
Vanguard analysts have been looking to 2025 and beyond to assess the future.
A recent study from the financial services company, one of the largest on the planet, predicts that the global monetary easing cycle will be in full swing this year, with inflation in most developed economies now within striking distance of targets. of the central banks.
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“The good fortune of high productivity growth and an increase in available labor has boosted the U.S. economy, while other economies have been less fortunate,” the report says.
“The potential for these positive supply-side factors to wane is a key risk to our US outlook, although expansionary fiscal policy may cushion any negative impact on growth,” Vanguard added.
artificial intelligence will be the big thing in 2024, with ai chipmaking monster Nvidia (NVDA) ranking as the Dow's best performer last year.
While all the hype surrounding ai and its potential to change the world is justified, Vanguard said widespread adoption won't happen overnight.
“While we expect the adoption of ai to be relatively faster than previous innovations (a common feature of digital technologies), significant productivity growth from the use of ai is not likely to occur until the end of the 2020s, even in our most optimistic scenario,” the firm said.
Vanguard noted that the Federal Reserve began reducing interest rates for the first time this cycle at its September 2024 meeting, recognizing progress toward restoring price stability.
“In fact, the US economy has achieved a favorable balance of strong GDP growth, low unemployment and cooling inflation,” the firm said. “We attribute this confluence to recent supply-side (labor force and productivity growth) dynamics that have shaped the economic landscape over the past two years.”
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Vanguard said that going forward, these conditions and a changing political environment will require the Federal Reserve to recalibrate its current expectations about the extent to which it needs or can reduce policy rates.
“We anticipate growth momentum to remain strong in 2025, supported by less restrictive monetary policy as well as continued productivity tailwinds that have lifted our estimate of potential growth,” the report says. “We forecast GDP growth of 2.1%, reflecting a modest drag from potential changes to trade and immigration policies.”
Vanguard expects core inflation to remain near 2.5% in 2025, above the Federal Reserve's 2% target, due to strong economic momentum and the potentially inflationary effects of new trade and immigration policies.
In response, the Federal Reserve will have to adjust to those policies and recalibrate to the likelihood that a neutral policy rate will be above the 2.9% currently assumed.
“We expect a more cautious reaction in 2025, with the monetary policy rate remaining at or above 4% by the end of the year,” the firm said.
Vanguard said that if economic growth and earnings hold up, U.S. stocks could maintain elevated valuations.
Vanguard Reveals 10-Year stock market Outlook
However, the company added, as the horizon broadens, the impacts on growth and earnings diminish, and valuations eventually dominate returns as a “fundamental gravity.”
“For these reasons, our 10-year outlook leans toward underperformance of U.S. international markets,” Vanguard said. “However, there remains a 30% chance that the United States can still do better in the long term, but by a narrower margin than in recent years.”
Looking ahead, the report says the challenge is that regions with the most attractive valuations are also most exposed to economic policy risks.
Emerging markets and Europe have low valuations but are particularly vulnerable to US trade policy.
“A tug-of-war between tax cuts and tariffs will be key to reconciling gains for U.S. stocks in the near term,” Vanguard said. “This political tension raises the prospect of adverse economic developments that could expose the current overvaluation of U.S. stocks.”
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