U.S. Economy Ends 2024 on a Strong Note, Preparing for Potential Policy Shifts

The U.S. economy ended 2024 on a solid footing, with consumer spending driving growth, and just ahead of a major shift expected under a Trump administration. According to the Commerce Department’s latest data, GDP grew at a rate of 2.3% in the fourth quarter, slightly below economists’ expectations but still reflecting the continued resilience of the economy.

For the entire year, the economy expanded by 2.8%, showing steady growth despite various challenges. This marks a slight decrease from 2023's 2.9%, but still signals a strong foundation as the country heads into the new year.

Consumer Spending Fuels Growth Amidst Mixed Business Investment

Consumer spending remained the primary engine of economic growth in late 2024, rising at a robust 4.2% annual rate during the fourth quarter. This growth was an improvement from the previous quarter, where it had been 3.7%. The increase marks the strongest quarter for consumer expenditure since the first quarter of 2023, which was notable for its resilience amid rising prices.

However, business investment faced challenges, with a significant dip in spending on equipment following two strong quarters. This decline in business investment could signal a potential slowdown in future growth, as companies may be cautious about expanding amid persistent inflation concerns.

Despite these challenges, inflationary pressures remained persistent, as evidenced by the rise in the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Index. PCE inflation increased to 2.3% in the fourth quarter, up from 1.5% in the third quarter, signaling that inflationary pressures were far from easing. Core PCE inflation, excluding volatile food and energy prices, rose to 2.5% from 2.2% in the prior quarter.

Trump’s Economic Policy: Potential for Growth or Setbacks?

As President Trump prepares to return to the White House, there is growing uncertainty regarding how his policies will impact the economy. Trump’s plans to cut taxes, ease business regulations, and overhaul immigration could provide a stimulus to the economy. However, his proposals, such as imposing higher taxes on imports and deporting millions of undocumented workers, may slow economic growth and lead to higher prices for consumers.

Trump has also promised to lower oil prices, and he has expressed intentions to pressure the Federal Reserve to cut interest rates further, a move he believes will boost the economy. However, Fed Chair Jerome Powell has deflected questions about these suggestions, reaffirming that the central bank does not plan to rush into further rate cuts despite the ongoing challenges with inflation.

This potential policy shift is contributing to a mixed economic outlook. While Trump’s administration may prioritize policies that promote faster growth, analysts are concerned that the costs of those policies could be felt in the form of higher inflation and slower long-term growth.

Growth Under Pressure: What’s Next for the U.S. Economy?

Despite Trump’s bold economic promises, the current trajectory of U.S. economic growth has been supported by a combination of factors, including resilient consumer spending, low unemployment, and a steady recovery from the challenges of 2022 and 2023. However, experts are cautious about the potential for a slowdown in 2025, as they predict a slight dip in GDP growth for the first quarter of the new year.

“Given the pressures on the federal government and potential disruptions in policy, we wouldn’t be surprised to see a modest deceleration in growth,” said Paul Ashworth, chief North America economist at Capital Economics. He forecasted that first-quarter GDP growth could fall below 2%, primarily due to the possible delays in policy implementation and the economic adjustments following Trump’s return to power.

The Federal Reserve, which has already made three interest rate cuts since September 2024, is likely to continue a cautious approach to monetary policy. With the economy still growing and inflationary pressures lingering, the Fed may be hesitant to implement further aggressive cuts.

Global Economic Divergence: U.S. Versus Europe

As the U.S. economy continues its steady growth, Europe has entered a period of stagnation, raising concerns about the global economic balance. Last week, the European Central Bank cut its benchmark interest rate by a quarter-point, highlighting the widening gap between economic growth in the U.S. and Europe. While the U.S. economy is expanding at a solid pace, Europe’s economy saw no growth in the final quarter of 2024, raising concerns about long-term recovery on the continent.

This economic divergence suggests that the U.S. may remain the stronger performer in the global economy, at least in the near term. However, the outlook remains clouded by ongoing inflation concerns and the potential for economic disruption under Trump’s policies.

The latest GDP data released last week paints a picture of an economy that, while growing, faces potential disruptions from both domestic policy shifts and global economic pressures. With Trump’s return to the White House potentially heralding significant policy changes, economic analysts will be closely watching the first quarter of 2025 to gauge the direction of the U.S. economy moving forward.