Evelyn Reynolds

Long a focus of conservatives, the level of public borrowing is starting to concern left-leaning economists. Proposed remedies still differ radically.The 119th Congress began, as it so often has in recent years, with calls from Republican politicians for wrestling down the national debt, which is near a record level relative to the size of the economy.But this time, the G.O.P. had company: Progressive economists and budget wonks, who have often dismissed finger-wagging about debt levels as a pretext for slashing spending on programs for the poor, are starting to ring alarm bells as well.What’s changed? In large part, long-term interest rates look unlikely to recede as quickly as had been hoped, forcing the federal government to make larger interest payments. And the Trump administration has promised to extend and expand its 2017 tax cuts, which will cost trillions if not matched by spending reductions.“I find it easier to stay calm about this threat when I think the interest rate is low and steady, and I think in the past year or so that steadiness has been dented,” said Jared Bernstein, who led the Council of Economic Advisers in the Biden administration. “If one party refuses to raise revenues, and the Democrats go along more than is fiscally healthy, that’s also a big part of the problem.”To be clear, conservative warnings on the debt have generally been met with little action over the past two decades. A paper by two political scientists and an economist recently concluded that after at least trying to constrain borrowing in the 1980s and 1990s, Republicans have “given up the pretense” of meaningful deficit reduction. Democrats and Republicans alike tend to express more concerns about fiscal responsibility when their party is out of power.Historically, the stock of debt as a share of the economy has risen sharply during wars and recessions. It peaked during World War II. In the 21st century, Congress has not managed to bring the debt back down during times of peace and economic growth.Revenues Are Not Keeping Up With Projected SpendingIf not addressed, debt will probably mount to unprecedented levels.

Source: Congressional Budget OfficeBy The New York TimesSpending Has Been Creeping UpAs a share of economic output, mandatory outlays — mostly Medicare, Medicaid, and Social Security — are growing fastest. But as debt rises, so do interest costs.

Source: Office of Management and BudgetBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

GDP accelerated at a 2.3% annualized pace in the fourth quarter, the Commerce Department said. Economists surveyed by Dow Jones had been expecting an increase of 2.5% after growth of 3.1% in the third quarter.
For the full year, GDP accelerated 2.8%, compared with 2.9% in 2023.
Consumer spending rose at a robust 4.2% pace and, as usual, amounted to about two-thirds of all activity.
In other economic news, the Labor Department reported initial unemployment claims totaled 207,000 for the week ending Jan. 25, a sharp decline of 16,000 from the prior period and well below the forecast for 228,000.

U.S. economic growth slowed a bit more than expected in the final three months of 2024, the Commerce Department reported Thursday.
Gross domestic product, a measure of all the goods and services produced across the sprawling U.S. economy during the period, showed that the economy accelerated at a 2.3% annualized inflation-adjusted pace in the fourth quarter. Economists surveyed by Dow Jones had been expecting an increase of 2.5% after growth of 3.1% in the third quarter.

The report closes out 2024 on a somewhat downbeat note, though growth held reasonably solid. For the full year, GDP accelerated 2.8%, compared with 2.9% in 2023. Growth was 2.5% from Q4 of 2023 to Q4 of 2024. Thursday’s release was the first of three estimates the department’s Bureau of Economic Analysis will provide.
“Today’s GDP report confirms that the U.S. economic expansion continued apace into the end of 2024 on relatively firm footing,” wrote Mike Reynolds, vice president of investment strategy at Glenmede. “As goes the consumer, so goes the broader economy in the U.S., and household spending put in an exceptionally strong showing in Q4.”
Growth held up largely on the backs of consumers who continued to spend briskly despite the ongoing burden of high prices on everything from homes to cars to eggs at the supermarket. While inflation is well off the boil from its mid-2022 40-year high, it remains a burden for households, particularly those on the lower end of the income scale.
Consumer spending rose at a robust 4.2% pace and, as usual, amounted to about two-thirds of all activity. Government spending also provided a boost, accelerating at a 3.2% level.
Trade was a drag on growth in the period, with imports, which subtract from the GDP calculation, off 0.8%. Exports also declined 0.8%. Gross private domestic investment slumped by 5.6%, shaving more than a full percentage point off the topline number. An easing in inventories also cut nearly 1 percentage point.

In other economic news Thursday, initial unemployment claims totaled 207,000 for the week ending Jan. 25, a sharp decline of 16,000 from the prior period and well below the forecast for 228,000, the Labor Department reported. Continuing claims, which run a week behind, also fell, down 42,000 to 1.86 million.
The resilience of the U.S. economy and the relative deceleration in inflation has allowed the Federal Reserve to assume a patient stance on monetary policy. Though the Fed cut its key interest rate by a full percentage point in the last four months of 2024, officials have indicated that aggressive reductions are unlikely this year.
At the recently concluded Fed meeting, central bankers gave no indication that they are expecting cuts anytime soon, with Chair Jerome Powell insisting that he is in no hurry to ease.
Fed officials have been expressing some concern about whether the moves lower in inflation have stalled. Thursday’s report showed that the so-called chain-weighted price index, which measures prices and accounts for consumers substituting less-expensive products for more costly items, increased 2.2% on the quarter, faster than the 1.9% move in the third quarter but slightly below the 2.3% estimate.
However, the data also showed that consumers are dipping into savings to fund their purchases. The personal saving rate was 4.1%, down 0.2 percentage point from the prior quarter, for the lowest level in two years. More

Gross domestic product grew by 2.3 percent in the fourth quarter, capping a more robust year than expected. Policy uncertainty clouds the outlook.Growth slowed but remained resilient at the end of 2024, leaving the U.S. economy on solid footing heading into a new year — and a new presidential administration — that is full of uncertainty.U.S. gross domestic product, adjusted for inflation, grew at a 2.3 percent annual rate in the fourth quarter of last year, the Commerce Department reported on Thursday. That was down from 3.1 percent in the third quarter but nonetheless represented an encouraging end to a year in which the economy again defied expectations.Robust consumer spending, underpinned by low unemployment and steady wage growth, helped keep the economy on track despite high interest rates, stubborn inflation and political turmoil at home and abroad. For the year as a whole, measured from the end of 2023 to the end of 2024, G.D.P. increased 2.5 percent, far ahead of forecasters’ expectations when the year began.“We ended on a pretty strong note,” said Diane Swonk, chief economist for the accounting firm KPMG. “It’s stunning how resilient and strong the economy has been.”The figures are preliminary and will be revised at least twice as more data becomes available.But the economy entered the new year facing a new set of challenges. The whirlwind start to President Trump’s second term — including sweeping changes to immigration policy, a spending freeze that was announced and then rescinded and steep tariffs that could take effect as early as this weekend — has increased uncertainty for households and businesses. Economists warn that his proposals on trade and immigration, in particular, could lead to faster inflation, slower growth or both.“You really have all the right ingredients to support sustainable growth, but the question is, where will it be in 12 months’ time?” said Gregory Daco, chief economist for the consulting firm EY-Parthenon. “The risk is you break the economy.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

The German economy contracted in the fourth quarter, after logging a slight uptick in the three months ending in September.
Analysts polled by Reuters had been expecting the gross domestic product (GDP) to decline by 0.1%.
Household and government consumption expenditures increased, but exports were “significantly lower” than in the previous quarter, German statistics agency Destatis said.

The Frankfurt skyline at dusk on a November day.
Helmut Fricke | Picture Alliance | Getty Images

The German economy shrank by 0.2% quarter-on-quarter in the three months ending in December, according to preliminary data released by Germany’s statistics office Destatis on Thursday.
The figure is adjusted for price, calendar and seasonal variations.

Analysts polled by Reuters had been expecting the gross domestic product (GDP) to decline by 0.1%.
Household and government consumption expenditures increased, but exports were “significantly lower” than in the previous quarter, Destatis said.
“After a year marked by economic and structural challenges, the German economy thus ended 2024 in negative territory,” it added.
Carsten Brzeski, global head of macro at ING, said that there was now “a high likelihood this downturn will lead to a winter recession.”
Germany’s issues appear to be currently concentrated in the country’s industry, but this could change, he said in a note on Thursday.

“Given the importance of industry for the entire economy, spillovers to other sectors – be it via sentiment or real economic channels – are already happening.”
The crucial industry is also not set for a “substantial recovery” as issues with inventories and order books persist and tariffs on exports to the U.S. loom, Brzeski noted.
Thursday’s figures compare to a 0.1% rise of the country’s GDP in the third quarter of last year. Germany’s economic performance has long been sluggish, with quarterly GDP readings mostly hovering around the flatline in the past two years. The economy has however managed to avoid a technical recession.
On an annual basis, the German economy contracted in both 2023 and 2024, by 0.3% and 0.2% respectively.
Some respite is expected in 2025, with the German government on Wednesday revealing its forecast of 0.3% growth for the year — still a notably downward revision from it’s previous estimate of 1.1% growth.
“The diagnosis is serious,” Robert Habeck, economy and climate minister, said during a press conference Wednesday, according to a CNBC translation.
He added that the German economy has been stagnating for a long time. He pointed to both internal and global political uncertainty as factors leading to the cut to expectations, and added that the outgoing government had been unable to fully implement its growth plans as its term was ending early.
A federal election in Germany is slated for Feb. 23, which is earlier than originally planned due to the break up of the country’s ruling coalition late last year.
Habeck also said that there were structural issues weighing on the German economy, echoing comment made by the Finance Minister Jörg Kukies last week.
“The structural weaknesses of our economy absolutely have to be addressed,” Kukies told CNBC. “It’s really important that we embark on a path of economic growth.” More

Howard Lutnick, a wealthy donor to President Trump who has been chosen to lead the Commerce Department, defended Mr. Trump’s plans to impose broad tariffs and said he would take a tough stance on technology sales to China during his Senate confirmation hearing on Wednesday.If confirmed, Mr. Lutnick would lead on trade policy and oversee a broad portfolio of government programs touching on business promotion, technology and science. He told lawmakers that he favored “across-the-board” tariffs that would hit entire countries rather than specific products, to equal out America’s trading relationships.He said that, while he believed tariffs on China “should be the highest,” governments in Europe, Japan and South Korea had also taken advantage of the United States on trade. He said that American farmers, ranchers and fishers were being “treated with disrespect around the world.”“We need that disrespect to end, and I think tariffs are a way to create reciprocity, to be treated fairly, to be treated appropriately,” he said. Mr. Lutnick also insisted that tariffs would not cause inflation, though many economists say tariffs are often at least partly passed on to consumers in the form of higher prices.Asked about China’s recent advances in artificial intelligence, Mr. Lutnick said he would take a tough stance on the department’s oversight of technology sales to China, and back up U.S. export controls with the threat of tariffs. He said that the recent A.I. technology released by the Chinese start-up DeepSeek had been underpinned by Meta’s open platform and chips sold by the U.S. company Nvidia.“We need to stop helping them,” he said of China, adding: “I’m going to be very strong on that.”Senator John Thune of South Dakota, the Republican majority leader, during Mr. Lutnick’s confirmation hearing on Wednesday. Republicans promoted Mr. Lutnick’s personal story, describing him as someone who had achieved great success despite facing adversity.Eric Lee/The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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The German government on Wednesday slashed its gross domestic product forecast to just 0.3% growth in 2025.
This is down from a previous forecast of 1.1% growth, but broadly in line with estimates from bodies like the International Monetary Fund.

Economy and Climate Action Minister and Greens Party chancellor candidate Robert Habeck arrives for the weekly federal government cabinet meeting on January 29, 2025 in Berlin, Germany.
Sean Gallup | Getty Images News | Getty Images

The German government on Wednesday slashed its gross domestic product forecast to just 0.3% growth in 2025.
“The diagnosis is serious,” Robert Habeck, economy and climate minister, said during a press conference, according to a CNBC translation. He noted that, while there are some positive developments such as rising demand for credit, “Germany is stuck in stagnation.”

The latest GDP estimate is sharply down from an October projection of 1.1% growth this year, but broadly in line with forecasts from other economic bodies. The International Monetary Fund earlier this month cut its outlook and now sees 0.3% growth for the German economy this year, while the federal Bundesbank in December said it was anticipating the GDP to increase by 0.2% over the period.
In contrast, the association of German Industry on Tuesday forecast the country’s economy will contract by 0.1% in 2025, in what would be the third annual decline in a row.
Annual GDP figures released earlier this month showed that Germany’s economy contracted by 0.2% in 2024, after already shrinking 0.3% in the previous year. Quarterly GDP figures have also been sluggish, but so far a technical recession, which is characterized by two consecutive quarter of contraction, has been avoided.
Habeck said that several key reasons underpinned the downward revision of the GDP forecast. Among them is the fact that the current government’s growth initiative plans could not be implemented fully because of the premature end of the administration’s term, along with questions surrounding the outcome of the upcoming election. Habeck also cited geopolitical uncertainty, following the White House return of U.S. President Donald Trump and the possibility of tariffs against European countries.
Looking ahead, the domestic economy will likely initially only show weak development this year due to continuing geopolitical uncertainty and a lack of clarity about the economic and fiscal direction of the new government, the German ministry for the economy and climate said in a statement accompanying its 2025 economic report.

It envisaged that the economy will then pick up pace as inflation falls, real incomes rise and economic conditions become clearer.
Habeck noted that 1.1% GDP growth was now being forecast for 2026.
Germany is headed for a federal election on Feb. 23, which is taking place earlier than originally planned after the country’s ruling coalition broke apart in November.

Structural challenges

Echoing Finance Minister Jörg Kukies’ comments to CNBC last week, Habeck on Wednesday said that Germany suffers from structural problems, which he said were evidenced by the lack of upward development of the economy in recent years. In a statement on Wednesday he pointed to a shortage of laborers and skilled workers, exuberant bureaucracy and weak investment.
The finance minister added that Germany has been systematically underinvesting and that restrictive fiscal policies have been dampening growth.
A preliminary reading of Germany’s fourth quarter GDP is due out Thursday. The country’s statistics office earlier this month said that, based on the information available at the time, the economy pulled back by 0.1% in the three months to the end of December.
The Wednesday economic report also pegged inflation as set to average 2.2% this year. Germany’s consumer price index had fallen back below the European Central Bank’s 2% target in late summer, but has risen again since. More

The European Central Bank is set to kick off its 2025 meetings with another interest rate cut on Thursday, as traders aim to gauge how far it is willing to diverge from a stalled Federal Reserve.
Money markets were on Wednesday pricing in 35 basis points worth of rate cuts for the January meeting, indicating the euro zone’s central bank will cut by at least a quarter-percentage point.
A key question is whether the ECB is comfortable with the increasing distance between its own monetary policy path and that of the world’s biggest central bank, the Federal Reserve, which is set to hold rates on Wednesday.

The European Central Bank is widely expected to kick off its 2025 meetings with another interest rate cut on Thursday, as traders aim to gauge how far the central bank is willing to diverge from a stalled Federal Reserve.
Money markets on Wednesday were pricing in 35 basis points worth of rate cuts for the January meeting, indicating the euro zone’s central bank will cut by at least a quarter-percentage point. That would take the deposit facility, its key rate, to 2.75% marking its fifth trim since it began easing monetary policy in June 2024.

Market pricing then suggests follow-up cuts at the ECB’s March and June meetings, with a fourth and final reduction bringing the deposit facility to 2% by the end of the year.
Expectations for a swift pace of easing this year have solidified, even after headline euro area inflation increased for a third straight month in December. A slight uptick in the rate of price rises was expected due to effects from the energy market, while business activity indicators for the bloc show continued weakness in manufacturing and tepid consumer confidence. Economists polled by Reuters are expecting fourth-quarter growth figures to show GDP expanding just 0.1%, down from 0.4% in the third quarter.
While this week’s ECB rate move is near guaranteed, several key questions remain that its president, Christine Lagarde, will likely be quizzed on during her post-announcement press conference — and many of those relate to the U.S. and its new leader.
One concern is whether the ECB is comfortable with the increasing distance between its own monetary policy path and that of the world’s biggest central bank, the Federal Reserve, which is set to hold rates on Wednesday. Markets are pricing in just two quarter-point rate cuts from the Fed this year, as projected by Fed members in December.
Some strategists suggest the Fed could enact just one cut, and at the very least tread water as it awaits more detail on President Donald Trump’s actual policies versus his extreme trade threats and their potential inflationary impact.

Interest rates won’t fall as fast as expected if tariffs stoke inflation, UBS CEO says

Lagarde acknowledged that divergence in an interview at the World Economic Forum last week, telling CNBC that it was the result of different economic environments. While the euro area has fallen into stagnation, the U.S. economy has continued to grow at a solid clip in the higher interest rate environment, and many investors are optimistic on the 2025 outlook despite Trump uncertainty.
“We have to look at a differentiation here through the lens of growth and the spare capacity that is building up in the U.S. We have an economy that’s performing strongly and rapidly … We can’t say the same thing when we look at the euro zone,” Sandra Horsfield, economist at Investec, told CNBC’s “Squawk Box Europe” on Wednesday.
“That divergence does mean that inflationary pressures are more likely to be sustained for some time in the U.S.,” she said, leading her to forecast one more Fed cut followed by a pause, and a greater scope for cuts in Europe.

Currency drag

The ECB has repeatedly stressed that it is willing to move ahead of the Fed and that it is focusing on its domestic picture of inflation and growth. However, a major impact of policy differentials is in foreign exchange, with higher rates tending to boost a domestic currency.
This reinforces expectations that the euro could be pulled back to parity with the greenback and suggests even further strength for an already-mighty U.S. dollar in 2025. That matters for the ECB, because a weaker currency increases the cost of importing goods, even if the central bank’s bigger concerns right now relate to domestically-generated services and wage inflation.
Lagarde downplayed the impact of this effect, telling CNBC the exchange rate “will be of interest, and … may have consequences.”
However, she also said she was not concerned about the import of inflation from the U.S. to Europe and continues to expect price rises to cool toward target. The ECB president added that bullishness around the U.S. economy was a positive “because growth in the U.S. has always been a favorable factor for the rest of the world.” 

Trade question

While a weaker euro could be a factor that spurs the ECB to cut rates with slightly more caution, there is also the possibility that Trump sparks a global or even Europe-focused trade war which further slows euro zone growth and creates the need for even more cuts.
The U.S. president has not re-proposed his idea of sweeping, universal tariffs on imports to the U.S., and is currently zeroed in on duties targeting China, Mexico and Canada. However, in a speech at the World Economic Forum, he accused the European Union of treating the U.S. “very unfairly” on trade, pledging: “We’re going to do something about it.”

Trump slams trade relationship with European Union: ‘We have some very big complaints’

Trade wars could disrupt global supply chains and stoke inflation, warranting higher interest rates at the ECB, said George Lagarias, chief economist at Forvis Mazars.
“Inflation and rate risks are definitely on the upside” for the euro zone, he told CNBC by email.
“EU company selling price expectations have flattened and show an upward tendency. This is a leading indicator to the ECB’s own projections … and the Fed will likely be on a more hawkish path, so significant divergence from the ECB could risk flight of capital towards the Dollar,” he added.
On the possibility that the ECB could enact a bigger half-point rate cut, he said: “If we do see a sharp rate cut, it would mean that the board seeks to protect growth in the core of the euro zone, and make sure that political uncertainty in France and Germany or a loose fiscal policy in Italy do not cause a precipitous rise in borrowing rates.”
Bas van Geffen, senior macro strategist at RaboResearch, also said he was “less optimistic when it comes to the inflation outlook than the ECB is, or markets appear to be,” forecasting a fall in rates to 2.25% this year.
“When the ECB incorporates Trump tariffs in their baseline scenario, we would expect higher inflation forecasts on their part too,” he told CNBC. More