To The Moon

The global economic landscape in 2025 is complex and fluid, with the dynamics of the U.S. market of particular interest.With Donald Trump re-elected as president, his policies will have a profound impact on the economy.This article examines the key trends, policy implications, and market expectations for the U.S. economy in 2025.

Key Variables

1. Trump's policies are pivotal.The order and intensity of his policies after his inauguration will shape market expectations and become an important weathervane for the direction of assets.

2. The AI industry continues to be a major investment theme.Developments in the tech sector are expected to be a new engine to pull the overall economy.

3. Exchange rate intervention has far-reaching implications.The exchange rate policies of both the U.S. and China will have a key impact on capital flows and investment decisions.

Economic Growth and Inflation Expectations

According to Wall Street forecasts, U.S. GDP growth is expected to be between 1.5% and 2.5% in 2025, a growth rate in line with the highest levels among developed economies.

Despite the overall positive economic performance, inflation remains a concern.The Federal Reserve raised its 2025 personal consumption expenditure (PCE) growth forecast to 2.5% at the December 2024 FOMC meeting, demonstrating a cautious approach to future inflation risks.

Inflation Data Analysis

• CPI Expectations: According to a Bloomberg survey of 83 analysts, year-on-year CPI growth rates for the first through fourth quarters of 2025 are 2.5%, 2.4%, 2.6%, and 2.5%, respectively, indicating a downward trend in inflation.

• Core inflation: excluding food and energy, core inflation is projected to reach 2.8% and 2.5% in 2025, still above the 2% target set by the Fed.

The Fed's monetary policy

The Federal Reserve announced in December 2024 that it would cut the federal funds rate by 25 basis points to 4.25%-4.50% and expects only two rate cuts in 2025, a forecast that is substantially reduced from the previous four.This policy adjustment reflects the Fed's uncertainty about future economic conditions and its wariness of inflation risks.

Path of interest rate cuts

• Number of rate cuts: it is now widely believed in the market that the Fed will adopt a more cautious rate-cutting strategy in the first half of 2025, possibly with only one cut in the second half of the year.However, this may actually change with economic data, as well as changes in fiscal policy.

  

  Interest rate forecast: By the end of 2025, the median interest rate forecast will fall to between 3.75% and 4%, an adjustment that shows the Fed's cautious approach to economic recovery.

• Asset-accounted rate cut expectations: the magnitude of expected rate cuts over the next 1 year accounted for by each asset class are:

  $iShares 20+ Year Treasury Bond ETF(TLT)$ < $Copper - main 2503(HGmain)$ < cme interest rate futures < $SPDR Gold Shares(GLD)$ < $.IXIC(.IXIC)$ < $.DJI(.DJI)$ < $.SPX(.SPX)$

Impact of Trump's policies

The Trump administration's "America First" policy will have a profound impact on the direction of the U.S. economy.His pro-business policies may stimulate business investment, but his tough stance on global trade has also triggered market uncertainty.

Policy Highlights

1. Tightening of immigration policy: Trump plans to tighten immigration policy, which could lead to a shortage of labor supply, thereby limiting productive capacity and economic growth.

2. Tariff policy: the imposition of tariffs could push up domestic prices and exacerbate inflationary pressures, thereby affecting consumer spending and overall economic vitality.

Debt ceiling

The federal government may actually hit the debt ceiling as early as January 14th, after which, until a new deal is reached, the Treasury will only be able to draw down cash deposits (reflected in a reduction in the TGA account) or perform some technical unconventional operations to maintain necessary spending.For the market, liquidity will increase during this process as Treasury deposits are placed.

Currently the U.S. TGA account has a balance of about $720 billion, which may last until the middle of this year, assuming fiscal spending and revenue levels at the same time in 2024.

House Speaker Mike Johnson, who was re-elected in the January 3 congressional changeover, has indicated that the $1.5 trillion debt ceiling may be raised through the reconciliation process, provided that it is accompanied by a $2.5 trillion cut in "Mandatory Net Spending" (Mandatory Spending, which consists primarily of net spending on Social Security, Medicare, Medicaid, etc.).subsidies, and other programs' net spending).After the settlement, if the Treasury needs to replenish the TGA account that was depleted during the negotiation process, it tends to tighten liquidity by increasing the supply of debt issuance.

Market Reaction and Investment Strategies

In the face of a complex economic environment, investors need to focus on the following points:

• Rise of the AI industry: with the development of artificial intelligence technology, related companies are expected to see profit growth, which could be an important factor driving the stock market higher.

• Consumer spending performance: despite inflationary pressures, the strong performance of consumer spending will remain an important driver of economic growth.According to the data, inflation-adjusted consumer spending has increased by nearly 4% over the past 12 months.

Overall, the U.S. economy in 2025 faces many challenges and opportunities.The Trump administration's new policies will have a significant impact on the market, while the Federal Reserve's monetary policy will need to be flexible to respond to the changing economic environment.Investors should pay close attention to these developments in order to adjust their investment strategies in a timely manner to address potential risks and opportunities.