TOPIC
Economic Outlook 2025: New Year, New Risks

TOPIC SUMMARY
The election outcome elevated both the upside and downside growth risks for the economy. On the upside, most if not all the expiring 2017 tax cuts should be extended steering the economy clear from a huge fiscal cliff effective January 1, 2026. And President-elect Trump talked about even lower corporate and personal taxes during the campaign, along with a lighter regulatory touch. On the downside, threats of increased U.S. tariffs and foreign retaliation are already being lobbed, amid a looming campaign promise of mass deportations. And the new DOGE is musing about radical surgery on government spending. Where the net risk will ultimately settle is unclear at this stage. But one thing is clear, the new Congress and Administration are inheriting unfavorable debt and deficit dynamics even before the first policy is put in place. 

Meanwhile, we can likely count on the Federal Reserve continuing to cut policy rates (perhaps at a pared pace), despite inflation’s stubborn last leg to 2%, owing to a labor market that continues to slow and slacken. And we can also count on a continued sturdy underlying economic expansion propped by unfolding Fed rate cuts and accommodation financial conditions, along with healthy (aggregate) household finances and past industrial policy efforts.

LEARNING OBJECTIVES
1.  To better understand the risks posed to the economy (and your business) from potential shifts in fiscal and trade policies next year and beyond.

2.  To understand why the Fed will likely continue to cut policy rates despite stubborn core inflation and the prospects for fiscal/trade policy shifts.

3.  To better understand the U.S. economy’s weakest link…federal government finances.

Michael Gregory, CFA
Deputy Chief Economist & Managing Director | BMO Capital Markets

Michael is part of the team responsible for forecasting and analyzing the North American economy and financial markets. He has spent his career working in either economics or financial markets research for firms on both sides of the Canada-U.S. border. Prior to his current role, Michael headed up the Financial Services Analysis team at Bank of Montreal, focusing on regulatory and industry restructuring issues, before shifting to BMO Capital Markets Economics in 2004. He moved to Chicago in 2013, providing research support for the U.S. and Canadian fixed income business, before returning to Toronto in 2016. 

Michael is a graduate of Concordia University in Montreal and Western University in London, Ontario. He did doctoral studies at Fordham University in New York City and holds a Chartered Financial Analyst Designation.