The following is a transcript of an interview with Aditya Bhave, Senior Economist at Bank of America, on “Face the Nation with Margaret Brennan” that aired on December 29, 2024.
MAJOR GARRETT: We’re turning now to the economy and what to expect in 2025. We’re with Bank of America senior economist Aditya Bhave. Aditya, good morning. It’s great to see you. I have covered many presidential transitions. There is always an assessment of the outgoing president about what kind of economy he is handing over to his successor. This is a political conversation. Objectively, what is the economy that the incoming Trump administration is inheriting?
ADITYA BHAVE, BANK OF AMERICA SENIOR ECONOMIST: Good morning. Thanks for having me, so we think the economy has very solid momentum going into next year. You can look at our internal card data, for example, which shows a nice acceleration in holiday spending. You can also look at TSA data on airport traffic, and that also looks very strong during the holiday period. You can also think about things with a wider lens. From 2022, it was a year in which GDP grew by only 1%, CPI inflation peaked at 9%, and then there was talk of stagflation. When, not if, a recession hits, why do workers quit? And then look what happened over the next two years, right. This was quite unexpected, and in a very nice way. GDP growth of 3%, drop in inflation, increase in labor productivity. Thus, all the positives that leave us optimistic for next year that we will be able to continue growing above 2% even with a somewhat sticky inflation.
MAJOR GARRETT: Is there any bigger X-factor in 2025 than the scale and scope of the Trump administration’s promised mass deportations?
ADITYA BHAVE: From a market perspective, I think the two biggest issues are going to be fiscal policy and trade policy, and there’s a lot of uncertainty around those as well, just like there’s around the immigration policy. So with fiscal policy, you had that conversation in your last segment, right? The Republican majority in the House is very, very narrow. So if they want to extend the Tax Cuts and Jobs Act, they want to do more fiscal stimulus, which we think is probably going to happen, they have very little room to work. And then with trade policy, we really have to understand, you know, how much of the tariffs that President-elect Trump has threatened will actually be implemented versus how much is a negotiating tool, right. So how much is transactional.
MAJOR GARRETT: And for the mass deportations, how much do you fear it could affect the job market in our country? That is, put upward pressure on prices, because if there are mass deportations and job inspections, many workers in agriculture, construction, meat processing, and other vital industries could be taken out of those sectors .
ADITYA BHAVE: So I think our best case is that there will be a slowdown in the flow of immigrants, right? It’s harder to know what will actually happen around the deportations. From an economic perspective, a worker is also a consumer, so there are some downside risks to economic activity. If there’s a big change in the right population, that’s just math. As for the pressures on specific sectors, it will really depend on how things play out. Yes, there could be labor shortages in certain sectors, but it is very difficult to know at this stage.
MAJOR GARRETT: A lot of CEOs that I hear say that they expect the tariffs and the regulatory relief to go away, meaning basically, you put them together, it’s benign for the US economy. Is this your perspective?
ADITYA BHAVE: I think that is correct. If you look at the four key policy issues that we’ve focused on, as I said earlier, trade, tax policy, immigration policy, and deregulation, we think they’re going to roughly wipe out. But then again, the starting point is pretty useful, right? So we think we can continue to grow at around two to two and a half percent this coming year as well as 2026.
MAJOR GARRETT: So, reading the year-end summaries, the Economist, the Wall Street Journal, the Washington Post, all in their own ways, warned that the stock market may be overvalued, may be too exuberant . Do you share any of these concerns?
ADITYA BHAVE: I’m not an equity analyst, so it’s hard for me to say, to give a specific number, our equity strategists think the stock may continue to rise to 66-6700 by the end of this year. What you can say is that there’s obviously been a pretty aggressive rally in tech stocks, but it’s not on the same scale that we saw in the late 90s. If we’re really worried about a bubble like that.
MAJOR GARRETT: What effect do you think cryptocurrencies and artificial intelligence will have on the global economy in 2025?
ADITYA BHAVE: So when it comes to AI, I think there are two things to say. The real impact of AI adoption will likely emerge rather slowly in the data. So I don’t know that we’ll necessarily see that in 2025 or 2026, it could be a story for a number of years. But what has really had an impact already, and will probably be much more impactful in the coming years, is just laying the groundwork for AI, right? So if you see the increase in data center investment and you think what does all this entail, right? Requires materials. Requires power supply –
MAJOR GARRETT: – We need it, forgive me –
ADITYA BHAVE: -It requires manpower, of course.
MAJOR GARRETT: Sorry to cut you off. We have a tough break to get to. Aditya Bhave from Bank of America, Happy New Year, and thank you very much for being with us. We’ll be back in a moment.