US Economics Analyst Investor Expectations for the Second Trump Administration (MericleWalker)

Summary of Key Points from Goldman Sachs US Economics Analyst Report Industry Overview - The report focuses on the US economic outlook, particularly regarding government spending, corporate tax rates, trade policies, and their implications for inflation and monetary policy. Key Points Government Spending Cuts - 42% of investors expect insignificant or modest spending cuts from the Department of Government Efficiency (DOGE) [1] - 19% anticipate cuts between $25 billion and$100 billion, while 32% expect cuts exceeding $100 billion, equating to 0.3% of GDP annually [1] Corporate Tax Rate Expectations - Approximately 60% of investors expect a decline in the statutory corporate tax rate [3] - The current expectation is that the broad statutory corporate tax rate will remain at 21%, but the rate for domestic manufacturers may be reduced to 15% [3] Trade Policy and Tariffs - Anticipated increases in tariff rates on imports from China by an average of 20 percentage points, with higher rates for non-consumer goods [7] - Nearly 60% of investors expect only increased tariffs on imports from China, while about 40% foresee a universal 10-20% tariff [8] - The average probability assigned to the implementation of a universal tariff is around 35% [12] Policy Risks - The primary concern among investors is the risks associated with tariffs, cited by 60% of respondents, followed by fiscal sustainability concerns at 20% [14] - A potential universal tariff could raise inflation to approximately 3% at its peak and reduce GDP growth by 0.75-1.25 percentage points [18] Inflation Expectations - Investors expecting a universal tariff anticipate higher inflation, with 55% expecting core PCE inflation of 2.6% or higher [18] - The report indicates that a 10% universal tariff would have a one-time effect on inflation, but the overall impact on the economy would be manageable [24] Monetary Policy Outlook - The report suggests that the Federal Open Market Committee (FOMC) may implement consecutive rate cuts through Q1 2025, with a total of two final cuts expected in June and September [23] - The market is perceived to be pricing a shallower rate cut path than what is expected by Goldman Sachs [22] Economic Growth Projections - Real GDP growth is projected to be 2.5% in 2023, with a gradual decline to 2.1% by Q4 2025 [36] - Consumer expenditures are expected to grow at a rate of 2.5% in 2023, with a slight decrease in subsequent years [36] Labor Market Insights - The unemployment rate is projected to be around 3.7% by Q4 2025, with underemployment at 7.1% [36] - Payroll growth is expected to average around 150,000 monthly [36] Conclusion - The report highlights significant investor concerns regarding tariffs and their potential impact on inflation and economic growth, while also providing a cautious outlook on monetary policy adjustments in response to these changes [14][18][22]