Augustine (Gus) Faucher is senior vice president and chief economist of The PNC Financial Services Group, serving as the principal spokesperson on all economic issues for PNC.
Prior to joining PNC as senior macroeconomist in December 2011, Faucher worked for 10 years at Moody’s Analytics (formerly Economy.com), where he was a director and senior economist. He was responsible for running the firm’s computer model of the U.S. economy, edited a monthly publication on the U.S. economic outlook, covered fiscal and monetary policy, and analyzed various regional economies. Previously, he worked for six years at the U.S. Treasury Department, and taught at the University of Illinois at Urbana-Champaign. He was named senior vice president in March 2015, deputy chief economist in February 2016, and to his current role in April 2017.
Faucher is frequently cited in international, national, and regional media outlets including The Wall Street Journal and The New York Times. He has appeared on ABC World News, CBS Evening News, NBC Nightly News and Nightly Business Report, and is regularly featured on CNBC, CNN and Fox Business. In addition, he appears regularly on CBS Radio, NPR and Marketplace.
Webcast Transcript:
Hi, I'm Gus Faucher, Chief Economist for the PNC Financial Services Group, with an economic outlook for the new Trump administration in early 2025. I think it's fair to say that risks both to the upside and to the downside for the U.S. economy are greater under a Trump administration than they would have been under the Harris administration.
One of the key questions is what is going to happen to trade. In early February, President Trump announced tariffs on goods from Canada, Mexico, and China. Although he quickly withdrew the tariffs from Canada and Mexico after reaching an accommodation. That being said, tariffs will raise prices for U.S. consumers on goods imported from these countries. And in addition, there is the potential for retaliation from our trading partners.
Given that exports to Canada and Mexico make up over 1 percent of U.S. GDP, the potential for retaliatory tariffs is a concern for U.S. manufacturers in 2025. Tariffs also have the potential to raise inflation for U.S. goods. Inflation has slowed dramatically over the past few years, although it still remains somewhat above the Federal Reserve's 2 percent objective. Much of the slowing in inflation has come on the goods side, both energy goods and core goods, goods excluding food and energy. And tariffs would raise prices for American consumers for many types of goods.
Therefore, there is the potential for inflation to move somewhat higher in the near term if we see substantial tariffs on U.S. imports. An additional question is, what happens to the United States labor force? The U.S. has enjoyed a very strong recovery from the COVID pandemic caused recession in early 2020.
Much of that growth has come from strong labor force growth, the number of people who are either working or looking for work. And some of that labor force growth has come from increased immigration to the United States since the pandemic. The U.S. labor force is up by about 5 million from where it was before the pandemic.
However, restrictions on immigration would weigh on labor force growth and could mean slower economic growth. In addition, restrictions on immigration could mean stronger wage growth as businesses compete for fewer workers, and that could also contribute to higher inflation. Overall, the U.S. baseline outlook is for a bit slower economic growth in 2025, as the U.S. continues to absorb increases in interest rates over the past few years, even as the Federal Reserve has started to cut interest rates more recently. However, there are potential upside and downside risks to growth in 2025 and 2026. Tariffs could cause higher prices that could weigh on consumer spending growth.
Alternatively, tariffs could result in higher U.S. production for some goods. Restricted immigration could lead to slower labor force growth and weigh on economic growth in the United States. There are upside risks from tax cuts that could provide more money to corporations to invest and more money to consumers to spend.
And also potential upside from reduced regulation that would allow businesses more flexibility and allow them to more easily increase output. The key question is how does the Federal Reserve respond to all of this? If we see tariffs raising inflation, if we see restricted immigration leading to higher wage growth and higher inflation, then the Fed may be less likely to cut interest rates or could actually raise interest rates in the near term instead.
That being said, the Federal Reserve could also decide to look through any temporarily higher inflation due to tariffs or restricted immigration. They may decide that this acceleration in inflation is only temporary and there's no need to respond to that, and they can continue to gradually reduce interest rates over the course of 2025, which would support stronger economic growth.
We will have more information on Trump administration policies as they are rolled out. You can find all of our materials at pnc.com/economicreports, and you can follow me on X, formerly Twitter, @GusFaucherPNC.
