The economist who predicted the election outcomes in detail tells B-17 his forecasts for 2025 GDP, inflation, and the threshold that would explode the deficit

In the months leading up to the US election, betting markets were choppy, at one point leaning in favor of Vice President Kamala Harris over President-Elect Donald Trump. But as we got closer to voting day, things began to consolidate.

By October, there was enough data for Christophe Barraud, the chief economist and strategist at Market Securities Monaco, to confidently make a call, concluding that it would likely be a Republican sweep. And he nailed it.

His economic models also forecast that the result would cause a shock spike in the 10-year yield to at least 4.5%. On November 6, as results from the polls rapidly poured in, the yield hit an intraday peak of 4.75%. As of Friday, it was hovering near 4.4%.

Looking ahead, Barraud, who Bloomberg has ranked as the most accurate forecaster of the US economy every year except once since 2012, is making some slight adjustments to his 2025 projections for US GDP growth and inflation.

“Now that we have a clear result without a contested election, I’m pretty sure that many companies will adjust their CapEx, will invest more, and will also add more jobs,” Barraud said. “Whoever was elected, the economy was supposed to accelerate. But with Trump, I think that there could be a kind of sentiment boost in the short term because a lot of consumers and companies are expecting tax cuts, which could be positive even before implementing them.”

He previously said that US GDP growth in 2025 would be stronger than expected at 2.1%, above Bloomberg’s consensus forecast of 1.9%. Post-elections, he anticipates a slight boost to that number and may revise it upward over the next few weeks to 2.2% or 2.3%. This follows the assumption that adverse weather conditions and election uncertainty temporarily damped growth. Near term, he will look for clues from wage growth, jobless claims, and company commentary on Christmas sales as confirmation.

Despite the Republican sweep, Trump will still face friction on his policies. Barraud expects a handful of Republican senators to push back on changes that could aggravate government debt. It means Trump will be forced to lower the bar on his promises to avoid shaving too much off government revenue. Otherwise, the budget and deficit would explode, Barraud noted.

For example, if Trump wants to make the Tax Cuts and Jobs Act of 2017 permanent, the promised corporate tax-rate cut of 15% may need to look more like 17% or 18%, he noted.

Based on information pulled from the Congressional Budget Office, the Tax Foundation, and conversations Barraud is having with clients, including large banks and hedge funds, he has concluded that if the deficit exceeds the threshold of 7.5% to 8% of GDP annually, it would significantly impact long-duration US Treasuries. The fiscal budget gap for 2024 is 6.4%, up from 2023’s deficit of 6.2%.

“The idea is that if the deficit is above this threshold, the interest rate on the 10-year could go beyond 5%, and it’ll have a negative effect on the economy, especially for the housing market,” Barraud said. “So we think that beyond 5%, there could be negative spillover, and that could be counterproductive.”

The spillover would go beyond mortgage rates. As the yield rises, servicing US debt would become more expensive, borrowing costs for companies and consumers would rise, and at some point, multiples would come under pressure, hurting the stock market, too, he noted.

Finally, inflation could be higher than expected in 2025. He projects the consumer price index averaging 2.5%. A stronger labor market will cause this, especially wage growth and new job creation, combined with labor shortages from restrictive immigration policy. And as tariffs take effect toward the end of the year, it could further boost inflation.