Investing.com - The US economy has entered 2025 with a "strong head of steam" although uncertainty around President-elect Donald Trump's policy plans has clouded the outlook for the year, according to analysts at Wells Fargo (NYSE:WFC).
In a note to clients on Thursday, the analysts estimated that the US economy grew at an annualized rate of 2.7% in the fourth quarter, slowing from a 3.1% in the third quarter. If accurate, then this would mean that real gross domestic product expanded 2.8% on an annual average basis in 2024, they added.
They argued that, considering real output increased at an average rate of 2.4% per year during a period of economic expansion from 2010-2019, "the American economy appears to be in solid shape at present."
Meanwhile, most businesses are looking strong, they suggested, pointing to data indicating that even though the pace of hiring has eased in recent months, most firms neither need workers nor "want to cut staff."
Progress has also been made on returning inflation to the Federal Reserve's 2% target level, the analysts added.
So-called "core" consumer price growth, which strips out volatile items like food and fuel, edged up by 0.2% month-on-month and 3.2% year-over-year in December, data from the Labor Department's Bureau of Labor Statistics showed on Wednesday. Economists had estimated the numbers would match November's pace of 0.3% and 3.3%, respectively.
However, the deceleration in inflation may be halted if the incoming Trump administration follows through on a threat to impose sweeping new import tariffs on both allies and adversaries alike, the analysts said.
They added that "higher prices resulting from [the] tariffs" would subsequently weigh on real income growth, denting consumer spending activity.
"Higher tariffs, if imposed, would impart a modest stagflationary shock to the economy," the analysts argued, predicting that the levies could lead to a downshift in economic growth in the second half of 2025.
But they still see activity accelerating in 2026 thanks to the impact of a possibly more business-friendly environment, including looser regulations and tax cuts, during Trump's second term in the White House.