Economic forecast: Fair, but uncertain

FINDLAY — A fair-to-middling economic forecast for 2025 is tempered by a wild card: President-elect Donald Trump’s promised tariffs, tax cuts and immigration policies.

Inflation is projected to hold steady in 2025 at the 2.4-2.5% pace of recent months, Ed Knotek, director of research, Federal Reserve Bank of Cleveland, said this week. Knotek reported forecasts by the Federal Reserve’s 12-member policy-setting Federal Open-Market Committee.

Economic growth is forecast to cool from the above-average rate of 3% for much of 2024 to a more average pace of just above 2% in 2025, Knotek said.

But Trump is preparing to impose blanket tariffs on imports while congressional Republicans push to extend the tax cuts that they passed in 2017.

Democrats argue the policies would enrich the wealthiest Americans and hurt working families. A tariff is a tax on an import, and it commonly increases the cost of the import to the consumer. But Scott Bessent, Trump’s Treasury secretary pick, told a Senate panel Thursday it all would “unleash a new economic golden age that will create more jobs, wealth and prosperity for all Americans.”

Knotek was more cautious than either side. How things will turn out will depend on policy specifics, he said.

“The details are going to matter and we, in many cases as a profession, don’t have all the details. So it’s the specifics, it’s the timing,” he said. “It’s exactly what policies will be put in place, when they will be put in place ... that will ultimately be very important in driving the economy.

“There’s been a lot of discussion about tariffs. Tariffs are basically a tax on imports,” Knotek said. “It’s very common for that to increase the cost of those imports. But exactly how that will play out dynamically through the economy, there’s a little bit more uncertainty.”

Trump also has promised to detain and deport illegal immigrants. Many private sector economists expect those moves to spur higher prices for goods and services, higher inflation and possibly lower employment rates for American workers.

Knotek was more circumspect.

“If we think about changes to immigration policy, that certainly could affect the size and composition of the U.S. labor force, either in the near term or over time,” he said. “Fewer workers could affect things like wages, prices and output.”

A slowdown in immigration during the first Trump administration and a gap over the pandemic created a shortfall of workers. That was part of what allowed prices to jump in 2021 and 2022, both by driving up wages and by limiting the supply of goods and services, according to Federal Reserve officials and other analysts.

Other variables which would affect the economy are whether the 2017 Trump tax cuts, slated to expire year-end 2025, are extended; and federal spending and regulatory changes, Knotek said. Some foresee potential for economic growth but also more inflation.

“Many economists, if you look across a number of proposals that are out there, suggest that these different proposals could boost growth,” he said. “At least some of them are likely to raise costs and at least some prices, but there’s a lot of uncertainty around what the effects could be.”