2025 will see Fed rate hikes, rampant Trump tariffs and a China recession, says Apollo

Apollo Management dropped its 2025 market risk report, and it’s not looking pretty. Fed rate hikes are back on the table, Trump is ready to slap tariffs on half the world, and China’s economy might finally cave under the weight of its deflation crisis.

If this plays out, 2025 won’t just be volatile, it’ll be a financial minefield. Trump’s potential tariffs lead the charge. Apollo gives them a 90% chance of happening. The targets? Everyone. Canada and Mexico could see 25% slapped on their exports.

BRICS countries like China, Brazil, Russia, and South Africa might face up to 100% tariffs.  Apollo says these tariffs could knock 1.7% off U.S. GDP, but tax cuts are expected to offset the hit with a 2.4% boost.

Nvidia’s bubble, inflation’s comeback, and the Fed’s dilemma

Nvidia, the darling of the AI boom, might crash back to Earth. Apollo warns there’s a 90% chance the company’s earnings will miss Wall Street’s sky-high expectations. After driving 20% of the S&P 500’s gains in 2024, Nvidia’s shine is fading.

Even hitting targets in Q3 didn’t trigger a rally, and 2025 looks even tougher. Apollo isn’t optimistic. Inflation is the other big story. It’s clawing back into the spotlight after months of cooling. Apollo sees a 40% chance that inflation will heat up in Q1 2025.

Core CPI’s annualized 3-month rate is already above 3.5%. CPI, PCE, and PPI are all climbing. The Fed has noticed. It’s trimmed its rate cut forecast for 2025 from three to just two, totaling 50 basis points. Apollo believes rate hikes are back on the table with a 40% probability.

This would hit crypto and stock markets alike, igniting new volatility. The Fed might also abandon its beloved r-star framework, according to Apollo.

The real neutral interest rate, which balances economic growth and inflation, has been a guiding star for years. Apollo assigns a 70% chance the Fed pivots away from it in 2025, showing uncertainty about their long-term strategy.

China’s economic nightmare and America’s resilience

China’s economy is circling the drain. Apollo sees a 40% chance the country enters a full-blown recession. It’s not hard to see why. Deflation has gripped the economy for five straight quarters—the worst streak since 1999.

Stimulus measures? Useless so far. The property sector, a cornerstone of China’s growth, is crumbling. If Beijing can’t stabilize things, the global economy will be caught in the disaster.

The U.S., on the other hand, is flexing its muscles. Apollo gives a 0% chance of a U.S. recession in 2025. GDP growth ended 2024 at 2.8% and is expected to hold at 2.3% next year. Inflation remains above the Fed’s 2% target but isn’t spiraling out of control.

Employment numbers are strong too. November saw 227,000 new jobs added, bouncing back from October’s hurricane disruptions. The unemployment rate is expected to tick up slightly to 4.4% by the end of 2025, but the labor market remains resilient.

Corporate America is cashing in on the AI boom. Companies are pouring money into AI infrastructure, chips, and intellectual property. Bankruptcies and defaults are down, thanks to low-interest rates locked in during earlier Fed cycles.

Trump’s comeback and geopolitical chaos

Trump’s policies are expected to shake up everything. Apollo warns his agenda—lower taxes, higher tariffs, and stricter immigration rules—could fuel inflation, strengthen the dollar, and send markets into a tailspin.

Geopolitical risks add another to the uncertainty. The wars in Ukraine and the Middle East show no signs of resolution. Rising U.S.-China tensions could spill over into global trade. Apollo notes that the federal deficit, currently at 6% of GDP, leaves little room for error.

Long-term interest rates might stay high for years, complicating the fiscal outlook even more. Debt is another problem. The U.S. government’s spending spree, from the CHIPS Act to the Inflation Reduction Act, has fueled growth but also boosted the deficit.

Apollo cautions that a rushed Fed pivot could reignite inflation, undermining years of progress. Markets are pricing in a 25% chance of a U.S. recession in 2025, but that number could rise if policymakers miscalculate.

The 10-year yield and consumer resilience

The U.S. 10-year Treasury note yield is a wildcard. Apollo predicts a 40% chance it will climb above 5% by mid-2025. This would be a nightmare for bond markets and could trigger broader sell-offs.

The yield has already jumped 100 basis points since the Fed began pivoting in 2024. Another spike would hit equities, real estate, and crypto markets hard.

Consumers, however, are holding steady—for now. Spending grew 3.7% in Q3, and confidence is high. The Consumer Confidence Index hit 111.7 in November, with short-term expectations also rising. Apollo expects spending to moderate in 2025, dropping to 2% growth, but this resilience has been a key driver of the economy’s strength.

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