- Outlook for the U.S. Economy in 2024

Key Chapter Title List

1. Overall Economic Outlook (2025-2026)
2. Current Economic Conditions
3. Key Policy Implications of the Federal Election
4. Monetary Policy
5. Fiscal Policy
6. Real Estate Market
7. Energy Market
8. Specific Forecasts for 2025-2026
9. Forecast Risks

Document Introduction

This report is issued by the University of Michigan Quantitative Economics Research Seminar. Based on the latest economic data, policy developments, and election results, it provides a comprehensive and systematic analysis of the U.S. economic trajectory for 2025-2026. The research background focuses on policy adjustments following the end of the Federal Reserve's interest rate hike cycle, the restructuring of fiscal, tax, and trade policies after a Republican sweep, and the complex evolution of the labor market and inflation trends. The core aim is to address key questions such as whether the U.S. economy can sustain its expansion and how policy adjustments will affect growth drivers.

The report first outlines the current fundamentals of the U.S. economy: the annualized real GDP growth rate reached 2.8% in the third quarter of 2024, with consumer spending and government defense expenditures being the main supports, while private fixed investment contributions remained weak. The labor market shows signs of moderate cooling, with the unemployment rate stable around 4.1% and job growth slowing but still resilient. Inflation control has made phased progress but experienced setbacks; the core CPI inflation rate rebounded after a short-term decline, with housing inflation remaining a key influencing factor.

In terms of analytical methodology, the report relies on the "Michigan Model," integrating revised National Income and Product Accounts (NIPA) data, the Job Openings and Labor Turnover Survey (JOLTS), the Consumer Confidence Index, and other multi-source data. It combines a multi-dimensional analytical framework encompassing monetary policy transmission mechanisms, fiscal and tax policy effects, and international trade dynamics. It specifically analyzes the Federal Reserve's interest rate adjustment path, forecasting another 25 basis point cut in December 2024 and a cumulative 100 basis point cut in 2025, reaching a terminal rate range of 3.25%-3.5%.

At the policy level, the report delves into the policy agenda following a Republican sweep: it is expected that most provisions of the 2017 Tax Cuts and Jobs Act will be extended, the corporate tax rate for domestic manufacturers will be reduced to 15%, the cap on state and local tax (SALT) deductions will be raised, while consumer incentives for electric vehicles will be terminated. Tariffs on China are highly likely to increase significantly to three times the level of Trump's first term, and their implementation in 2026 will have profound impacts on inflation and trade balance. This policy mix is projected to push the federal deficit from 6.1% of GDP in fiscal year 2024 to 6.8% in fiscal year 2026, reaching a historical high for a period without war, pandemic, or severe recession.

Key forecasts indicate that U.S. real GDP growth will slow to 2.1% in 2025, rebounding to 2.2% in 2026 stimulated by tax cuts. The unemployment rate is expected to stabilize around 4.4% in 2025, with a slight decline to 4.2% in 2026. The PCE inflation rate will gradually converge towards the Federal Reserve's 2.0% target, around 2.1% in 2025, and rise slightly to 2.3% in 2026 due to tariff impacts. The real estate market will recover slowly, and auto sales will grow steadily, but both face constraints from interest rate volatility and policy uncertainty. The report also warns that risk factors such as geopolitical conflicts, deviations in policy implementation intensity, and an unexpectedly sharp cooling of the labor market could cause actual developments to deviate from the forecasts.