The CEO Macro Briefing Book
12 questions ahead of 2025
Read the full report for answers to all 12 questions
CEO macro briefing book
CEO macro briefing book
In this report, UBS CIO answers 12 of the most asked questions about markets and the economy from our business-owner clients including:
What kind of economy will the incoming administration be inheriting? And is it really as bad as consumers feel it is?
The three policy areas we are watching out for that may have an outsized impact on growth and inflation.
How worried about the growing pile of debt should policymakers and investors be?
Trump 2.0 will inherit a ~5% “Roaring 20s” economy
Real GDP growth continues its above-trend pace. Four years since the pandemic, the US economy has defied not only recession forecasts but also is running at a pace closer to the 1990s than the sluggish post-Global Financial Crisis period. Real GDP is expected to grow 2.6% in 2024, faster than the 1.8% pace many policymakers consider to be the “trend” growth rate. So far, higher growth (around 2.5%) and inflation around 2.5%) has resulted in a 5% nominal growth economy, much more akin to the late 1990s period than recovery preceding the pandemic.
A Roaring ’20s so far. Even with a modest slowdown in 2025, the US economy shows many aspects of a “Roaring 20s” economy with:
- Real GDP growth running at an above-trend pace
- Inflation trending quicker than the Fed’s 2% target
- Longer-term interest rates staying elevated around 4%
Yes, “Roaring 20s” mostly a US phenomenon
2025 US growth expectations higher than its DM peers. Next year, the US is expected to have the fastest growth rate compared to its major economic developed market peers, growing more than twice as fast as the euro area. Higher productivity, less exposure to energy prices, and a resiliency to high interest rates have helped the US grow faster after the pandemic versus its peers.
Trump 2.0 policies have the potential to widen growth differential between the US and other nations. While tariffs are stagflationary for the US, such a policy may have an outsized negative growth impact on net exporters, particularly in Europe and China, which are already on relatively weaker economic footing than the US.
Expect 100bps of rate cuts in 2025
The direction of travel for policy rates is clear. The Federal Reserve started its rate cut with a “jumbo” 50bps rate cut in September, when more evidence was gathering for sustained disinflation and various aspects of the labor market showed significant signs of cooling. For the rest of the year, the Fed has signaled a 25bps rate cut in December 2024 and 100bps in 2025—at a pace of one cut a quarter—to end 2025 at a rate of 3.5%.
The “red sweep” election increases odds of more inflationary pressure…Trump’s signature policies that he campaigned on—more tax cuts, tariffs, and deregulation— all should quicken inflation in an environment without a recession.
…limiting the amount of rate cuts to come. Since the election, market expectations for more rate cuts in 2024 have diminished; now, investors expect only two rate cuts in 2025 compared to the four penciled in by the Federal Reserve in September.
Yes, as disposable income growth continues above trend
Consumers have been powering the above-trend growth in the US. Despite still-gloomy sentiment, US consumers have been the primary driver of US growth and there is reason to believe the strong trend can continue:
- Consumer balance sheets are very strong. According to the Federal Reserve, Americans in the middle quintile of incomes saw their net worth increase around 50% compared to pre-pandemic levels. Revisions to the savings rate data made this year show a much healthier consumer than initially thought, with more room to run. Additionally, as home prices continue rising, some consumers are also starting to take out HELOCs, which is another tailwind for consumption.
- Real wage growth remains positive. Wage growth currently trends around 4% outpacing inflation, providing a sustainable source of consumption growth for the intermediate future.
- Delinquencies rising but focused on lower-income households. There are some cracks in the consumer story with one of the largest being a rise in credit card debt and delinquencies. A deeper dive into the data shows that delinquencies tend to be focused on lower-income consumers who have an undersized effect on overall consumption and may subside as interest rates continue to lower.
Labor market to remain healthy, if marginally softer
A once white-hot labor market is now more balanced and moderating. After two years of labor shortages and employers struggling to keep up with rising wages, the labor market has shown more signs of cooling as the unemployment rate has risen from a post-pandemic low of 3.5% to around 4% in late 2024.
Labor demand has softened... Job openings decline from their record high levels to territory that’s more in line with the still-healthy labor market of 2019. Premiums paid to hire job quitters have also narrowed, reinforcing other measures of labor demand. Hiring has also slowed significantly, with the Fed’s Beige Book and household surveys similarly noting a hiring slowdown.
…but layoffs aren’t a concern yet. While labor demand has cooled, both continuing claims and initial jobless claims, indicators of unemployment, remain very low and are not indicative of an imminent recession. Firms may be wary of hiring workers, but they are not letting go of workers in a robust economic environment.
Immigration boost to slow or reverse under Trump 2.0. Over the last few years, the labor supply has grown, driven mainly by the net positive flow of immigrant workers. Since limiting immigration has been a key campaign issue, immigrant hiring is likely to slow or even reverse under the new administration.
