Fidelity Outlook 2025: The US is ready for reflation
The Republicans’ landslide victory in the November election has significantly changed the economic outlook for 2025. For much of 2024, we considered a soft landing in the US as our base case, but heading into 2025, Fidelity is betting on reflation – but it is also possible that this economy, whose exceptional growth in recent years has also served as a support for the rest of the world, is now turning inward and becoming more protectionist.
Growth-stimulating measures, supported by further fiscal easing, are likely to push inflation higher, reducing the risk of a US recession. This also requires a more precise view of the current stage of the cycle: Fidelity currently sees us in the mid-to-late phase of the cycle. Other major economies, particularly Europe and China, are challenged by changes in US trade and industrial policies, which are likely to weaken their own growth prospects and put downward pressure on domestic inflation as external demand slows.
These differences will support US growth overall in 2025, but the longer-term underlying trend is still a rising debt burden. Fidelity experts believe that public finances are rapidly reaching their limits, and above-target inflation is likely to be the least costly, orderly solution to the debt sustainability problem. In addition to the changing political mix in the developed world, the geopolitical implications of the Russia-Ukraine war and the Middle East conflict should also be closely monitored, as they could pose headwinds to the overall global macro environment.
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