By Mohamed A. El-Erian / Bloomberg Opinion
Wall Street analysts and economists have converged on a more turbulent near-term trajectory for the U.S. economy. The outlook is bumpier than anticipated, with lower growth rates, greater inflationary pressures, and more complicated international economic and financial interactions.
However, opinions still diverge sharply on the longer-term prospects, with some believing the U.S. is sharpening its “edge” as others fear it is eroding.
Recent “soft” data continues to flash warning signs, highlighted by Friday’s disappointing consumer sentiment survey from the University of Michigan. Confidence, income expectations and inflation are all heading the wrong way. Some of these signs are starting to be reflected in the “hard” data, pointing to what I strongly expect will be a massive round of revisions to 2025 growth forecasts.
Forget the International Monetary Fund’s January projection of 2.7 percent U.S. economic growth in 2025 (which constituted an upward revision due to the IMF’s anticipation of stronger demand and a favorable wealth effect). Instead, look for this and other projections to be revised to 2 percent or below in the next few weeks, with Goldman Sachs Group Inc. already lowering its forecast to 1.7 percent.
The reasons for these downward revisions are mounting. Concerns about lower-income consumers are compounded by policy uncertainty due to tariffs and Department of Government Efficiency announcements, fueling income and price insecurity and interrupting federal payments to contractors. The Trump administration’s narrative has evolved from the “nothing to see here” to “little disturbances” associated with an economic “detox.”
Soon, analysts and economists will also worry about a negative wealth effect following the sudden plunge in the stock market. This includes the fifth fastest correction for the S&P 500 Index since World War II. It is also likely to become evident that the Federal Reserve’s ability to significantly cut interest rates due to employment and growth worries may be constrained by unfavorable inflation dynamics.
While there is a convergence of views on the bumpiness of the journey, opinions on the destination are quite acute. They may well get even more so in the weeks ahead.
Some see this transitional period as improving the U.S.’s longer-term prospects, with a more efficient private sector, streamlined government, less stringent anti-trust rules, tax cuts, lower energy costs and controlled debt dynamics. Internationally, they envision the U.S. operating in a fairer trading system, with more domestic and foreign companies bringing production activities to the U.S. and other countries carrying more of the financial burden for national security.
Others fear the U.S. is eroding long-standing structural strengths. They worry about long-term damage to private sector activity due to a less predictable operating environment and inconsistent rule of law. They see the debt burden going up as actual and potential growth falters. They doubt the efficiency gains of the ongoing government reforms and see the U.S. undermining its central economic role as other countries rewire trade relations and move away from the dollar.
While there is much more agreement now about the short-term prospects, it’s too early to be confident about the U.S. economy’s destination. What seems undeniable is that the journey may get even bumpier as the world continues to react to U.S. developments.
Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.” ©2025 Bloomberg L.P., bloomberg.com/opinion.
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