At the risk of stating the obvious (and for the umpteenth time), one of the main macro-policy risks for the US economy in 2025 is the prospect of a persistent inflation impulse kept smoldering by Donald Trump’s “2.0” agenda, most of which is inflationary at least in theory.

Of course, theory and reality are two different things, and to the extent theory’s shorthand for orthodoxy and the establishment, it’s discredited on many vectors, although I’m not sure this is one of them.

Tariffs will raise the cost of related goods and services (even if that cost isn’t ultimately borne by consumers), deporting low-wage labor will raise the cost of that labor and piling fiscal stimulus atop an economy still high from previous stimulus initiatives should be expected to prolong what’s already a drawn out fight to wrestle inflation back down to tolerable levels.

All of that’s ceteris paribus, though, and while this time’s never different, all else is never equal. If you ask me, the odds of a disinflationary, mild recession are just as high as an inflationary overheat, particularly if you doubt, as I generally do notwithstanding my steadfast contention that the neutral rate’s much higher now, that the US economy’s going to escape the most aggressive Fed tightening cycle in a generation no worse for wear.

In any case, Trump’s inheriting a rekindled inflation impulse, as illustrated by the figure on the left, below, from Goldman, which shows a measure of inflation momentum broken down into macro and market components (click to enlarge, as always).

The inflation momentum tracker is one of the business cycle inputs for the bank’s equity drawdown risk metric, which now suggests the odds of a meaningful US equity pullback are elevated, at around one in three.

“Negative inflation momentum allows central banks to react swiftly in the event of growth shocks, reducing drawdown risk for equities and balanced portfolios,” the bank’s Andrea Ferrario remarked. The opposite’s true too: Positive inflation momentum constrains central banks in their capacity to cushion the economy should growth deteriorate. Inflation momentum’s positive now, led by market variables (in this case commodities and breakevens).

And therein lies the sum of all macro-policy fears for 2025: If inflation proves stubborn, the Fed may be reluctant, particularly in the context of PTSD from the post-pandemic experience, to ease aggressively, thereby increasing the risk that a pedestrian slowdown morphs into something more nefarious.

“While our economists are relatively benign on their US and global inflation outlook, a combination of rising trade tariffs and sticky services inflation globally has somewhat increased inflation risk,” Goldman went on. The December FOMC minutes, released this week, showed at least some Fed officials are already accounting for tariff-related price pressures in their core inflation outlook.

Meanwhile, the uncertainty that goes along with all things Trump doesn’t help. “An increase in policy uncertainty has also increased equity drawdown risk,” Goldman’s Ferrario remarked, pointing to the figure on the right, above. “While the predictive power of policy uncertainty for equity drawdowns has been mixed, with elevated policy uncertainty and geopolitical risks there is potential for setbacks that are very difficult to anticipate.”