Deep Dive Into The Matrix
Moody's Talks - Inside Economics
Deep Dive
What was the U.S. GDP growth in 2024, and how did it compare to the forecast a year ago?
The U.S. GDP growth in 2024 is expected to come in around 3%, which is higher than the 2% forecast from a year ago.
Why is the potential growth rate of the U.S. economy expected to slow in 2025?
The potential growth rate of the U.S. economy is expected to slow in 2025 due to reduced immigration and potentially lower productivity growth. The incoming administration's policies on tariffs and deportation are expected to impact the labor force and innovation.
What are the main risks to the U.S. economy in 2025 according to the Risk Matrix?
The main risks to the U.S. economy in 2025 include a bond market meltdown, a stock market sell-off, and amorphous risks like cyber attacks and another global pandemic. These risks are considered high in both severity and probability.
Why are low-income household financial distress and a bond market meltdown considered high risks in the matrix?
Low-income household financial distress is considered a high risk due to high debt levels and difficulty coping with inflation. A bond market meltdown is high-risk due to the market's fragility, high volatility, and the shift in ownership from central banks to more price-sensitive investors like hedge funds.
What is the current forecast for U.S. inflation in 2025, and how might tariffs affect it?
The forecast for U.S. inflation in 2025 is that it will rise from the Fed's 2% target, peaking in the back half of the year and continuing into mid-2026. Tariffs are expected to contribute to higher inflation by increasing costs for goods and services.
What is the expected impact of a significant cyber attack on the U.S. economy?
A significant cyber attack, especially one that disrupts the payment system or hits multiple smaller banks, could lead to reduced consumer confidence, economic dislocation, and broader macroeconomic issues. It could also cause people to move their deposits to larger banks, creating liquidity issues.
What is the forecast for U.S. natural gas prices, and why is this a concern?
U.S. natural gas prices are forecast to be volatile due to the closure of the pipeline from Russia to Europe and the current cold snap. Natural gas prices have already risen 14% over the last month and 36% over the last year, which could contribute to inflationary pressures.
What is the trailing P/E ratio for the S&P 500, and why is it a concern?
The trailing P/E ratio for the S&P 500 is 26, which is very high and only exceeded by 2020. This indicates that the stock market is stretched and vulnerable to any negative economic news or disappointments from leading companies.
What is a potential serious surprise for 2025, and why might it happen?
A serious surprise for 2025 could be the Fed raising interest rates. This could occur if high inflation becomes more persistent and is not offset by slower growth, leading to a need for monetary tightening to control inflation.
What is the upside risk for the U.S. economy in 2025, and why is it significant?
The upside risk is a comprehensive immigration deal, which could significantly benefit the economy by providing a rational immigration system, increasing the labor force, and boosting long-term potential growth.
- 2024 GDP growth: ~3%
- 2025 GDP growth forecast: ~2%
- Inflation expected to decrease initially, then rise due to tariffs
- Fed to possibly cut interest rates twice in 2025
