Donald Trump will be sworn-in as the 47^th President of the United States on Monday 20/01, a day when financial markets will be closed for Martin Luther King Jr. Day. Upon his return to the White House, he has pledged to sign a spate of executive orders in the first day(s) of his presidency. Imposing trade tariffs on US imports, hardening immigration policies, reinstating some of his policies that were revoked by Joe Biden are among the numerous decisions he intends to take as soon as he is back in the Oval Office. For other parts of his agenda, President Trump will have to work with the two chambers of the new US Congress, whose members were instated on 3/01.

Before President Trump returns to office, the regular monthly data will have provided some insights on economic dynamics at the end of 2024. The JOLTS report (7/10) and the Employment Report (10/01) will reveal whether the US job market ends the year on the same robust dynamic that has characterised most of 2024. The first estimate of consumer confidence for January (10/01) and retail sales data for December (16/01) will update on households moral, the key driver of US growth. Business activity surveys will also be of interest to gauge the economic momentum at the turn of the year: The ISM Manufacturing (3/01) and Services (7/01), the NFIB index of small businesses’ optimism (14/01), the NAHB Housing Market index (14/01) and early regional surveys of January’s activity (Empire Manufacturing 15/01, Philadelphia Fed 16/01) will be worth paying attention to, as well as the Fed’s Beige Book update on local economic dynamics (15/01).

Donald Trump will take the helm of a roaring economy that has been growing above potential for two years and continues to exhibit robust momentum.

Source: Banque Syz, Factset Research

Just a few days after the inauguration of President Trump, the US Federal Reserve will hold its first monetary policy of the year 2025 (29/01). After the 18 December FOMC meeting, the outlook for US monetary policy has been significantly adjusted, with expectations of further rate cuts in 2025 having been significantly scaled down.

The strong economic activity and inflation in the US towards the end of 2024, the expected growth-supporting fiscal policies under the new administration, and potential inflationary measures like import tariffs and stricter immigration policies all point to a shift towards fiscal dominance. This means monetary policy will play a secondary role, responding to the direction of fiscal policy.

In this context, the current level of interest rates may not be as restrictive for economic activity as it was thought to be just a few months ago. In the latest update, a majority of Fed members now expect no more than two 25bp rate cuts in 2025, while market-implied expectations are reflecting a potentially even smaller amount of rate reduction this year. In any case, the Fed should leave its key rate unchanged in January, before gauging in the following months whether some adjustment to the policy rate finally is required.

USD short-term rates may only be slightly reduced in 2025, while EUR rates will be sharply lowered.

There is no mention of government policy in the Chinese zodiac, but fiscal stimulus might well be a defining feature of the New Lunar Year that will start on Wednesday 29/01. Indeed, economic activity has been subdued in the world’s second largest economy since 2022, and a further deterioration in 2024 already led to a set of supportive economic measures in the fourth quarter of last year, mostly designed to ease financing conditions and stimulate credit growth. A tentative improvement in some gauges of activity has been visible since then, that will need to be confirmed by the release of Q4 GDP data and December real estate prices and industrial production (17/01).

However, there is one major segment of the Chinese economy that remains clearly depressed: final consumption by households. Retail sales have been growing at a subdued pace last year and have not shown any sign of improvement so far. The release of December data (17/01) is unlikely to diverge from the recent trend and will likely confirm the weakness of domestic demand in China that is also visible in lacklustre inflationary pressures. CPI inflation hovered just above zero last year, and the release of December data (9/01) will likely confirm.

Domestic demand remains depressed in China, as reflected by subdued retail sales growth and lacklustre inflationary pressures.