Goldman Sachs, JPMorgan, and Bank of America are looking ahead to a strong 2025—as long as Donald Trump’s tariff proposals on China, Europe, and Canada don’t prove too inflationary.

Analysts are largely heading into the New Year feeling optimistic. After all, the AI rally is only just beginning, inflation is settling close to its target range, and employment remains fairly stable.

Plus, consumers have shown a surprising amount of resilience, and the worst ripple effects after the pandemic are receding. So, what could possibly go wrong?

Well, there is the Donald Trump factor.

While the short-term “Trump Bump” might have rounded out a rosy conclusion to this year’s trading, the Republican politician’s return to office raises questions about how the economy will fare moving forward.

Those who voted for the president-elect are confident in his approach. In the week following the election, consumer sentiment among Republican voters shot up nearly 30%, according to Morning Consult data—standing at its highest point since Biden was elected.

Economists aren’t as convinced, with many questioning how many of Trump’s policies will come to fruition when he takes office next month.

Their main concern is tariffs, with Trump saying he’d impose new rates on exports from Europe, China, and Canada.

While some countries will have to negotiate a new 10% to 20% charge, more recently, Trump has threatened the BRIC (Brazil, Russia, India, China) nations with a 100% tariff if they push ahead with a plan for their own currency, diverting trade away from the U.S. dollar.

So although Jerome Powell and the Federal Open Market Committee (FOMC) might have at last won the battle against inflation, economists fear Trump’s tariffs may mean they lose the war.

JPMorgan: Clear skies but rolling fog

Jamie Dimon–led JPMorgan estimates the U.S. economy grew 2.3% in 2024, boosted in particular by resilient consumers who contributed an average of 78% of real GDP growth in the first three quarters. This behavior is expected to continue into 2025, America’s biggest bank added.

The bank also had a generally confident outlook on employment and inflation, which is a plus for the heavily scrutinized FOMC.

“The labor market … is expected to remain healthy, with continued job gains and a stable unemployment rate at close to 4%. As the labor market normalizes, so too should the inflation rate. We anticipate headline PCE [personal consumption expenditures] inflation to close the year at 2.3%, and then average 2% next year,” the finance giant added.

That being said, the “clearer skies” JPMorgan sees on a cyclical climate level might be marred by another weather front rolling in: “a fog of uncertainty.”

Trump’s plan for tariffs, tax cuts, reduced regulation, and a crackdown on immigration could lead to inflation rising by 2.7% by the end of 2025, JPMorgan hedged, with the Fed funds rate rising back to 3.75% to 4% as a result.

Analysts continue to predict that unemployment will stay around 3.9% as the labor market tightens, with initial tax cut stimulus potentially boosting real GDP by 2.8% by 2026.

Bank of America: Brave new world

Trumponomics 2.0 is a double-edged sword for consumers, writes Bank of America’s Claudio Irigoyen and Antonio Gabriel.

On one hand, the policy agenda is pro-growth, likely leading to the continued outperformance of U.S. stocks compared with the rest of the world.

On the other hand, “aggressive tariffs could trigger a trade war and worsen geopolitical dynamics, leading to a global slowdown.”

Moreover, “excessive fiscal profligacy in the U.S., coupled with protectionist policies and financial repression, could lead to higher inflation and severe global instability.”

The duo expects the Fed to continue cutting rates to around 4%—they currently sit between 4.5% and 4.75%—forecasting two cuts in March and June.

That said, BofA frames the incoming Trump administration as a potential “major” economic shock.

The risks are “unusually large but two-sided” the duo adds in a note seen by Fortune, explaining: “Growth could be stronger than we are forecasting (perhaps even exceeding 3%) if the incoming administration focuses on the pro-growth aspects of its platform—fiscal easing and deregulation—and de-emphasizes the aspects that are unfavorable for growth—tariffs and immigration restrictions.

“At the other end of the spectrum, it is possible that i) the administration imposes 60% tariffs on China and 10% to 20% on the rest of the world, and the U.S.’s trading partners retaliate strongly, ii) there is significant tightening on the immigration front, and iii) fiscal easing is minimal.

“In this scenario, the economy could get pushed into a recession, and the Fed would probably end up cutting rates in late 2025/2026 to around 1%, or perhaps even lower. There is also uncertainty about the extent to which the administration will seek to cut spending. In summary, our base case is sanguine, but our conviction is low.”

Goldman Sachs: Not banking on tariffs

Goldman Sachs’ U.S. economist Ronnie Walker isn’t taking Trump at his word on tariffs and is banking on a 20% rate with China as opposed to the threatened 60%.

“The China-focused tariffs are likely to draw from the lists of goods created during his first term and could be imposed fairly quickly,” Walker wrote in a note seen by Fortune. “While Trump has also proposed a universal 10% to 20% tariff on all imports, we see this as a serious risk but not the baseline.”

Although Goldman doesn’t factor in all of Trump’s rhetoric, the banking giant still sees tariffs as a thorn in Jerome Powell’s side.

While the fundamentals are firmly in place for inflation to return to the Fed rate target of 2%, Walker wrote, “tariffs are likely to delay a return to 2% inflation in 2025.”

That’s because 70% of the price increase will be directly passed on to consumers, Walker wrote, with 15% being absorbed by foreign exporters and 15% being absorbed by domestic wholesalers and retailers.

Walker forecasts that the corresponding hike in inflation will result in a rate of 2.4% in 12 months’ time—though a universal tariff of 10% would increase inflation to 3%.

Welcome to ‘Trumponomics 2.0’: What Donald Trump’s 2025 return means for markets, from AI rally to tariff risks