The U.S. economy in 2025 faces a complex yet hopeful scenario. After months of uncertainty about a possible recession, key indicators are beginning to dispel that fear. At the same time, inflation — one of the main concerns for consumers, businesses, and authorities — shows signs of being under control. In this context, President Donald Trump’s recent announcement of a trade agreement with China adds an important note of optimism to the country’s economic and political agenda.

Munir Jalil, chief economist for the Andean region at BTG Pactual, summarized the situation by stating that “the ghost of a recession has disappeared” and that “the U.S. economy is moving at two speeds”: on one hand, the real Gross Domestic Product (GDP) shows no deterioration; on the other, consumer sentiment remains affected. With the latest data, it is likely that public perception about the economic future will begin to shift.

Inflation also offers reasons for cautious optimism. According to the most recent figures, monthly inflation stood at 0.1%, with an annual rate of 2.4%. These numbers slightly exceed the Federal Reserve’s target but remain far from the uncontrolled rise that had been anticipated due to the impact of tariffs.

A recent article in The New York Times confirms that despite warnings from businesses about price increases linked to tariffs imposed by Trump, the impact on inflation has been limited so far. The Consumer Price Index (CPI) showed an annual increase of 2.4% in May, just above April’s 2.3%. Core inflation, which excludes food and energy, remained steady at 2.8%, aligning with analysts’ expectations.

Factors such as inventories accumulated before tariff imposition, falling prices in categories like furniture, clothing, and vehicles, as well as declines in airfare and energy costs, have helped moderate inflationary pressures. However, economists and monetary authorities remain vigilant about the possibility that these costs could be passed on to consumers in the coming months, especially in sectors more exposed to tariffs.

The Trade Agreement with China

Amid this complex backdrop, President Donald Trump announced a trade deal with China that still awaits final approval between him and Chinese leader Xi Jinping. According to the released statement, the pact includes the advance supply by Beijing of magnets and rare earth materials — critical inputs for the technology and defense industries — an expanded student exchange program, and a tariff scheme where the U.S. would impose a 55% rate compared to China’s 10%.

This understanding came after negotiations in London, which followed a temporary tariff reduction agreement reached in Geneva, and represents a significant step toward de-escalating the trade war that has strained economic relations between the two largest global powers since 2018. Although details and implementation dates remain to be defined, the deal is generating positive expectations in the markets, which are closely watching its potential impact on supply chains, production costs, and bilateral trade.

Risks and Challenges Ahead

Nonetheless, optimism is accompanied by latent risks. The Federal Reserve has warned that tariffs could drive inflation “markedly” this year and into 2026, raising concerns about stagflation — where the economy grows weakly while prices continue to rise. Furthermore, the possibility that inflation becomes persistent could complicate the central bank’s ability to support the economy through interest rate adjustments.

In May, the Fed kept its benchmark rate in the range of 4.25% to 4.5% and has indicated a cautious approach, waiting for clear signs of labor market deterioration before considering cuts. For now, the labor market is cooling but shows no signs of collapse, supporting this prudent stance.

Meanwhile, the trade deal with China must pass political validation by both leaders and potentially face resistance from domestic sectors. The uncertainty around its implementation and scope keeps investors and analysts in a state of anticipation that could influence economic decisions in the coming months.

President Donald Trump’s economic accounts appear to be showing progress that, if sustained, could bring relief to a U.S. economy that feared recession just months ago. Controlled inflation and the China agreement are key pieces of this encouraging picture. However, the situation remains delicate and challenges persist, with inflationary risks, trade tensions, and political variables that could alter the economic trajectory.

The U.S. economy in 2025 sails between light and shadows, with its course largely dependent on the ability of the government, the Federal Reserve, and international actors to prudently manage these complex variables.