Prominent economist KC Mathews doubts the Federal Reserve will achieve a clean economic landing as numerous unknowns limit his confidence. .Mathews, chief market strategist for Kansas City, Mo.-based Commerce Bank, outlined his economic expectations May 5 during the Bank Holding Company Association Spring Seminar in Edina, Minn.“It’s going to be a bumpy landing, if we land at all,” Mathews added. Mathews expects GDP this year will range from 0.5 percent growth to 1 percent contraction, down from the economy’s 2.8 percent expansion in 2024. He expects inflation to rise to 3.60 percent from 2.90 percent at the end of 2024, while unemployment increases to 4.4 percent from 4.1 percent last year. Mathews said the federal funds rate will fall to 4 percent this year from 4.50 percent in December 2024. Mathews described the Trump administration’s economic policies at length. Though he agrees with Trump’s view that the federal government has spent inefficiently, he still sees the pace of spending cuts as too fast. The threat of higher inflation and more federal layoffs “affects us and our consumption,” he added. Trump has taken a more aggressive approach to tariffs in his second term than his first. In early April, he announced a series of tariffs as part of what he called “Liberation Day,” with the S&P 500 subsequently experiencing one of its worst four-day drops since it was established in 1957. Trump has raised baseline tariffs on Chinese imports to 145 percent, with China responding by slapping a minimum 125 percent tariff on U.S. goods while limiting exports of rare earth materials crucial to technology. Trump also implemented a 25 percent tariff on most goods from Canada and Mexico but later indefinitely exempted goods deemed compliant with the 2020 trade agreement between the three countries. Mathews predicted Trump will not implement 150 percent tariffs on China, and is instead using his stated plan to negotiate. Mathews said there is precedent for Trump’s protectionist trade stance: In 2002, President George W. Bush placed tariffs on foreign steel to protect domestic steel production. Trump’s call for mass deportations harms the economy, Matthews said, especially sectors that rely more heavily on immigrant labor such as drywalling and agriculture. A majority of seminar attendees expected the Federal Open Market Committee to cut interest rates 50 basis points in 2025. Responding to a digital audience survey May 6 during a presentation from The Baker Group Managing Director Dale Sheller, the next highest share expected a 25 basis point cut this year. Sheller said soft data such as consumer and business sentiment surveys have weakened far more than hard data, including inflation, employment and economic growth. Sheller predicted the federal funds rate will fall to under 3 percent if a recession hits. A majority of audience members expected the Federal Open Market Committee to cut interest rates 50 basis points this year, with the next highest percentage predicting 25 basis points in cuts. A majority of attendees said a recession has already started, with the next highest percentage saying there won’t be one. Sheller provided advice on bank contingency funding plans. He said such an approach should include identifying stress events; determining stress levels and testing; identifying funding sources; assessing funding needs; establishing an event management process; developing action plans; and establishing monitoring framework. Sheller called on banks to test their contingency funding plans on at least an annual basis.
Prominent economist KC Mathews doubts the Federal Reserve will achieve a clean economic landing as numerous unknowns limit his confidence. .Mathews, chief market strategist for Kansas City, Mo.-based Commerce Bank, outlined his economic expectations May 5 during the Bank Holding Company Association Spring Seminar in Edina, Minn.“It’s going to be a bumpy landing, if we land at all,” Mathews added. Mathews expects GDP this year will range from 0.5 percent growth to 1 percent contraction, down from the economy’s 2.8 percent expansion in 2024. He expects inflation to rise to 3.60 percent from 2.90 percent at the end of 2024, while unemployment increases to 4.4 percent from 4.1 percent last year. Mathews said the federal funds rate will fall to 4 percent this year from 4.50 percent in December 2024. Mathews described the Trump administration’s economic policies at length. Though he agrees with Trump’s view that the federal government has spent inefficiently, he still sees the pace of spending cuts as too fast. The threat of higher inflation and more federal layoffs “affects us and our consumption,” he added. Trump has taken a more aggressive approach to tariffs in his second term than his first. In early April, he announced a series of tariffs as part of what he called “Liberation Day,” with the S&P 500 subsequently experiencing one of its worst four-day drops since it was established in 1957. Trump has raised baseline tariffs on Chinese imports to 145 percent, with China responding by slapping a minimum 125 percent tariff on U.S. goods while limiting exports of rare earth materials crucial to technology. Trump also implemented a 25 percent tariff on most goods from Canada and Mexico but later indefinitely exempted goods deemed compliant with the 2020 trade agreement between the three countries. Mathews predicted Trump will not implement 150 percent tariffs on China, and is instead using his stated plan to negotiate. Mathews said there is precedent for Trump’s protectionist trade stance: In 2002, President George W. Bush placed tariffs on foreign steel to protect domestic steel production. Trump’s call for mass deportations harms the economy, Matthews said, especially sectors that rely more heavily on immigrant labor such as drywalling and agriculture. A majority of seminar attendees expected the Federal Open Market Committee to cut interest rates 50 basis points in 2025. Responding to a digital audience survey May 6 during a presentation from The Baker Group Managing Director Dale Sheller, the next highest share expected a 25 basis point cut this year. Sheller said soft data such as consumer and business sentiment surveys have weakened far more than hard data, including inflation, employment and economic growth. Sheller predicted the federal funds rate will fall to under 3 percent if a recession hits. A majority of audience members expected the Federal Open Market Committee to cut interest rates 50 basis points this year, with the next highest percentage predicting 25 basis points in cuts. A majority of attendees said a recession has already started, with the next highest percentage saying there won’t be one. Sheller provided advice on bank contingency funding plans. He said such an approach should include identifying stress events; determining stress levels and testing; identifying funding sources; assessing funding needs; establishing an event management process; developing action plans; and establishing monitoring framework. Sheller called on banks to test their contingency funding plans on at least an annual basis.
