Forget resolutions. A new year is all about attempted divination, the frantic search for foresight, a healthy combo of gazing into a crystal ball and good old-fashioned guesswork.
“Will this stock grow like it’s expected?”
“What will the Fed do with interest rates?”
“What will a second Trump term mean for my taxes?”
“Will the Chiefs pull off three in a row?”
So many question marks. In fact, it’s hard to predict how such famously unpredictable forces – global conflict, a volatile stock market, a demonstrably mercurial president – will have on your taxes, the price you pay for a new home, or the return on your investments.
Of course, that doesn’t stop us from trying. We turned to our friend Keith Prather, managing partner and co-founder of Armada Corporate Intelligence, an experienced economist who stays up-to-date on domestic and global economic outlooks, geopolitical risk, supply chain issues, raw material supply, environmental impacts on business operations, and so much more. We asked for his predictions on the year to come and how both individuals and companies can start preparing now.
Global Economy Will Move Together
As all the central banks around the world are still working to recover from the effects of the pandemic, Prather said they’re also dealing with too much spending and higher levels of debt, caused by higher interest rates used to tame inflation.
“Every central bank around the world is trying to juggle this fine line between pulling inflation down but also easing interest rates to try and spur economic growth,” he said. “And they have to move collectively because if one central bank gets out ahead of all the others, then the others see challenges.”
As we’ve witnessed Europe’s manufacturing and service sectors take a hit recently, Prather said there’s a general feeling that much of the world (other than the U.S.) is “decelerating,” which should force those central banks to ease conditions to get things moving again.
Of course, while we watch what our own Federal Reserve Bank does in the coming year, Prather said those moves should result in favorable conditions around the world as other central banks attempt to keep up.
“If they don't move as the U.S. Federal Reserve moves, their currency inflates and their exports shut down,” he said. “So, if we see the Federal Reserve wanting to trim interest rates, we would assume every central bank around the world will have to do the same thing and will have to at least be ahead or match it in those moves, which means the global environment should get more conducive to everything, from manufacturing to construction. And you should see at least the borrowing side for all businesses around the world get much easier.”
Prather also said he predicts global conflicts to ease in the coming year, which should limit their impact on the global economy. Also, if the world can prevent further Houthi rebel attacks in Yemen and manage to reopen the Red Sea, that should reduce the average price of oil by about $6 per barrel, which should ease inflation and lower shipping costs around the world.
“It really starts to create a little bit of a global economic tailwind,” he said.
‘Tariff’ is the Word of the Year
While there’s still widespread confusion about what a tariff actually is, most of America certainly recognizes the word following an exhausting campaign season. A new Trump administration is certain to prioritize the tariffs promised on the trail, including an extra 10% on China and 25% on Mexico and Canada. Prather expects certain products to be hit hard, but a lot depends on how they’re applied.
“His prior administration back in 2017 and 2018 issued about 18,000 exclusions on the tariffs they had applied,” he said. “So, it ended up being a little more of a surgical approach and only hitting certain industries.”
The previous tariffs, Prather said, had a negligible impact on inflation, bumping it from 1.7% to 1.9% once they all were applied, so he feels there won’t be a massive impact in that area with any new tariffs.
Yet, for many industries in the crosshairs – construction, for example – suppliers are already making contingency plans for how these extra costs will roll downhill to their customers. The result of all this guesswork has already made waves, Prather said.
“It's created a little bit of a chaotic environment to be honest with you. We'll work through it, but it's a little bit tough at the moment.”
While softwood lumber from Canada, for example, will likely get much more expensive if a hefty tariff is levied on that nation, Prather said he’s seeing more builders sourcing domestic lumber and making other concessions. As a result, that 25% tariff (if it stands) on Canadian imports will likely increase new home prices by only about 2 to 3%.
We won’t have to wait long, Prather said, to see what effect they do have:
“It's not a 2026 thing. It's going to be an early 2025 thing.”
Tax Cuts for Some, Maybe Not Others
Trump has announced a target annual growth rate of 3% for the next four years. While this is comparable to what we’ve seen recently under President Biden, Prather said it’s still an aggressive goal, especially considering the ongoing pandemic recovery and striving for something more akin to “normal”. One way Trump hopes to achieve that is by easing taxes overall.
One component, Prather predicts, is making the tax cuts from 2017 – which are set to expire at the end of 2025 – permanent.
“You may get enough pushback from Democrats in Congress and maybe some moderate conservatives … so we may not get everything we've got currently,” he said. “But I think we'll get the majority of those tax cuts.”
While that announcement won’t likely come until several months into the new administration, Prather predicts, he thinks Republicans will use these cuts as a way to negotiate with Democrats pushing for higher taxes on the wealthiest individuals.
“When you listen to the 1%, that's where you're hearing even them say, ‘We could probably pay a little more,’” Prather said. “It's just how you implement it and do it in a way that doesn't cut back on growth. … I think if there's tax risk coming, it may be at the ultra-wealthy end of the spectrum.”
For everyday individual tax filers, he said he sees plenty of general support on both sides of the aisle for extending the cuts permanently.
As for corporate taxes, Prather said he doesn’t expect any drastic tax cuts or changes, especially with the federal deficit where it is. However, if Trump starts to see progress in the deficit and in federal spending, he might consider tax cuts to spur more growth.
“He obviously is very favorable on what Florida and Texas have done, and he thinks that if you can extend that to almost every state in the country, it would mean good things for the economy,” he said. “That is, if he can do it without the federal deficit just getting blown up and going crazy.”
Partner Up and Pay Attention
As smart and experienced as Prather is, he also admits the year ahead is full of questions, hypotheses and simple guessing. Too many variables are still at play, and nothing is certain at this point.
“That uncertainty really requires you to stay close to your accountant,” he said. “That way, as these changes come in, you can optimize and take advantage of whatever your options are. I think that's going to be a critical message in the coming year.”
Uncertainty certainly abounds.
But as for the Chiefs and their three-peat? You can take that one to the bank.
