Outlook for the U.S. Economy in the Second Half of the Year: The Path to Breakthrough in the Fog
In the first quarter of 2025, the U.S. economy contracted by 0.3% quarter-on-quarter, with the impact of tariffs becoming evident. However, personal consumption expenditures (PCE) remained robust, and the market believes the economy still has resilience. The structural changes brought about by the technological revolution have become the core support for expectations of a 'soft landing'.
The consumption trend in the second half of the year is crucial, and the outcome of China-U.S. trade negotiations will directly affect tariff policies. The market generally expects that to avoid runaway inflation, the Trump administration may adjust its tariff strategy, especially with potential easing of tariffs on low- to mid-end manufactured goods.
The inflation outlook still has uncertainties. Despite an unexpected decline in CPI data in March and April, the potential impact of tariffs may still push prices higher. The Federal Reserve is cautiously weighing inflation against fiscal pressures, and the timing of interest rate cuts may be postponed until the third quarter, with the total number of cuts for the year potentially compressed to 1-2 times, with even the possibility of holding steady.
Fiscal pressures continue to intensify. Government reform plans are hindered, and the dual pressures of tariffs and tax cuts are putting stress on federal finances. We have raised our forecast for the annual budget deficit rate to 6.4%, and the outlook for debt ceiling negotiations is also unclear.
Overall, the U.S. economy in 2025 may present a 'low first, steady later' trend, with an average growth rate of about 1.2% over the next three quarters, and an annual growth rate of approximately 1.5%. The core inflation rate is expected to fluctuate around 3%, gradually approaching the 2% target by 2026.
In this economic game, tariff policies, fiscal constraints, and technological innovation form a delicate balance. Whether the U.S. economy can break through and move forward amidst multiple challenges not only concerns its own fate but will also profoundly impact the global economic landscape.
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