Deutsche Bank trims U.S. growth outlook, sees Fed on hold until December
Investing.com -- Deutsche Bank economists released today an updated economic outlook for the U.S. economy, taking into account key shifts in global growth expectations. The research firm indicates that U.S. economic growth is holding up better than initially feared, though a notable slowdown is still anticipated in the second half of the year.
As a result, Deutsche Bank forecasts U.S. real GDP growth at 1.0% for 2025 and 2.0% for 2026 on a quarter-over-quarter basis, translating to 1.6% and 1.7% on an annual average basis, respectively.
Core PCE inflation in the U.S. is projected to reach 3.5% this year. This forecast supports Deutsche Bank's expectation that the Federal Reserve will delay further interest rate cuts until December.
The bank also suggests that U.S. economic exceptionalism is diminishing as twin deficits weigh on the economy, leading to a bearish outlook on the dollar and upward pressure on term premia.
In contrast, the Euro Area's economic situation is stabilizing, with a 2025 growth forecast of 0.8%, aligning with November's projections. Inflation in the Euro Area is gradually easing, and fiscal stimulus, particularly in defense and industrial policy, is expected to support European economic "exceptionalism."
Germany is anticipated to experience a stronger growth rebound starting in 2026.
China's economic outlook has shown modest improvement, with a projected growth rate of 4.7% in 2025. The United Kingdom is experiencing growth alongside declining inflation, while Japan's momentum has softened. India remains resilient, with growth expected to be 6.5% for both this year and the next.
Deutsche Bank forecasts United States 10-Year to reach 4.5% and Germany 10-Year to rise to 3.0% by the year's end, indicating a more significant movement for German yields.
The report notes that the dollar's dominance is waning, with valuation and capital flow dynamics becoming more influential.
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