Plus: Bessent's smooth sail | Friday, January 17, 2025
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Axios Macro
By Neil Irwin and Courtenay Brown
·
Jan 17, 2025
Two major Washington, D.C., institutions put out new forecasts today: a U.S. growth upgrade from the International Monetary Fund and, just as this newsletter sends, the latest reading on the fiscal outlook from the Congressional Budget Office. We explore both below, plus our key takeaways from Treasury secretary-designee Scott Bessent's confirmation hearing yesterday. 🗓️ Programming note: We're off Monday for the holiday. Today's newsletter, edited by Ben Berkowitz and copy edited by Katie Lewis, is 787 words, a 3-minute read.
1 big thing: Outlooks, outlooks, everywhere
Illustration: Sarah Grillo/Axios
The U.S. economy will remain the world's growth powerhouse in 2025, IMF economists anticipate, even as uncertainty around trade and immigration policies creates inflation risks. The big picture: The latest World Economic Outlook envisions a more robust U.S. growth picture than seemed likely just three months ago, driven by strong consumer demand and productivity growth. That adds up to a favorable backdrop for the incoming Trump administration, even as the fund warns about some risks and uncertainties for the medium term. A separate report out today from the CBO projects continued high deficits over the years to come, not factoring in changes to fiscal policy enacted by the new administration. By the numbers: IMF economists now project 2.7% U.S. GDP growth in 2025, up from 2.2% in their October projections. They simultaneously marked growth expectations down for major European economies. Between the lines: The WEO does not mention President-elect Trump by name, but the impacts of his expected policies are evident throughout the document. "Confidence and positive sentiment in the United States, partly driven by deregulation, could boost both the demand and the supply side of the economy," the fund's economists write. They add that "relaxation of unduly tight regulations and reduced red tape for businesses may spur near-term US growth through higher investment," while warning that this could cause the dollar to appreciate and thus create financial headaches in many emerging markets. What they're saying: In a blog post , IMF chief economist Pierre-Olivier Gourinchas writes that "while many of the policy shifts under the incoming US administration are hard to quantify precisely, they are likely to push inflation higher in the near term relative to our baseline." He adds that policies "such as higher tariffs or immigration curbs, will play out like negative supply shocks, reducing output and adding to price pressures." The CBO's latest "Budget and Economic Outlook" for the coming decade contains reminders that strong U.S. growth in recent years has been propped up by high fiscal deficits. The good news in the report is that strong growth has improved the fiscal outlook relative to its June forecasts. The CBO now anticipates $1 trillion less in cumulative fiscal deficits over the coming decade than it did six months ago, and that debt as a share of GDP will reach 117% of GDP in 2034, compared to 122% in the June projection. Yes, but: The CBO did not try to account for likely changes to fiscal policy under the incoming Trump administration, which will alter the trajectory of deficits and debt. Extending the 2017 Trump tax cuts would push deficits higher in the CBO's models, while spending cuts and faster growth would make them lower. Of note: In its economic projections, the CBO is quite a bit more restrained than the IMF, seeing 1.9% GDP growth this year, well below the Fund's 2.7%.
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- Bessent's glide path
Bessent at his confirmation hearing yesterday. Photo: Tom Williams/CQ-Roll Call, Inc via Getty Images
The biggest takeaway from Bessent 's confirmation hearing is that it's a safe bet he will be confirmed as the 79th secretary of the Treasury. Republican senators supported his confirmation, and he will likely receive "aye" votes from many Democrats as well. But in roughly three hours of testimony, a couple of other moments caught our attention. State of play: The courtly and restrained Bessent warned of economic disaster if Trump's 2017 package of tax cuts, many of which are due to expire at the end of the year, are not extended. "This is the single most important economic issue of the day," Bessent said. "This is pass/fail. If we do not fix these tax cuts, if we do not renew and extend, then we will be facing an economic calamity." The Trumpian rhetoric sheds light on the incoming administration's strategy for extending the law. Between the lines: Republican lawmakers are mostly in lockstep on extending the 2017 Tax Cuts and Jobs Act (TCJA) provisions, but with a wider range of views about what other changes ought to be made to the tax system and potential spending cuts. Bessent's warning implies the administration will leverage the risk of the tax cuts expiring to persuade a fractious Republican caucus to find compromises. Bessent also seemed to support the idea of the Federal Reserve retaining its ability to set monetary policy independent from political control, contra some reporting about Trump allies' views. "I think, on monetary policy decisions, the [Fed policy committee] should be independent," Bessent said. Of note: Bessent mentioned a couple of times that he owns farmland and has an avid interest in agriculture. Per his financial disclosure , it is North Dakota property where soybeans and corn are grown. "I may be one of the few Treasury secretary nominees in recent periods who occasionally listens to farm radio" on satellite radio, Bessent said.
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