Economic and Real Estate Outlook for 2025: Insights from Jose Rasco of HSBC

On February 6th 2025, José Rasco gave an interview with Alf Nucifora of LuxeSF, the fifth in a yearly series of discussions about the national and local economies. The 2025 economic landscape is defined by uncertainty—driven by global conflicts, climate change, political division, and an unpredictable economy. Against this backdrop, Jose Rasco, Chief Economist at HSBC Americas, provided an in-depth analysis of economic trends, inflation, tariffs, interest rates, and the real estate market, particularly in the Bay Area and Silicon Valley.

Mr. Rasco is the Chief Investment Officer for the Americas at HSBC Global Private Banking. With over 25 years of experience in the financial industry, he plays a pivotal role in shaping investment strategies and providing economic insights for clients across the Americas.

Before joining HSBC in December 2010, Rasco was a senior investment strategist at Merrill Lynch. In that capacity, he collaborated closely with the chief investment strategist and global economic teams to develop investment and asset allocation strategies. His work encompassed extensive research on global thematic investing and socially responsible products, advising on investments across various sectors, including entertainment, media, technology, healthcare, commodities, manufacturing, and defense.

At HSBC, Rasco is a member of the Global Investment Committee and holds voting rights on the Investment Strategy Committee. His expertise is frequently sought after for commentary on economic developments and investment strategies. For instance, he has provided insights into Mexico’s economic transition, highlighting the country’s evolving economic landscape.

Throughout his career, Rasco has been recognized for his deep understanding of global markets and his ability to translate complex economic concepts into actionable investment strategies. His contributions have been instrumental in guiding clients through various market cycles and economic environments.

Inflation, Interest Rates, Tariffs, and Trump – a talk with José Rasco

Key Economic Themes and Global Market Forces

What follows are the highlights and key points that Mr. Rasco made in this interview – but listening to the whole talk will be very interesting to anyone concerned with the economy in 2025.

The Role of Tariffs and Inflation

Tariffs are being used as a tactical tool rather than a long-term economic strategy.
Inflation is not inevitable; strong U.S. economic fundamentals and market forces will help keep it in check.
Canada and Mexico remain key trade partners but are impacted by U.S. policies on immigration, fentanyl, and trade agreements.

U.S. Economic Growth Outlook

The U.S. economy remains strong, with consumer demand driving growth despite external challenges.
Capital inflows from global investors are substantial, reinforcing confidence in U.S. markets.
Nearshoring and onshoring of supply chains continue, reducing reliance on overseas manufacturing.

The Federal Reserve and Interest Rates

The Fed is expected to lower rates in June, September, and December 2025.
Mortgage rates remain high (~7%) but could decline by 50 to 100 basis points as inflation moderates.
Real wages are growing, meaning consumer spending power remains intact.

Real Estate Market Trends

Residential Real Estate Market

80% of U.S. homeowners hold mortgage rates below 4%, reducing market movement.
High mortgage rates discourage home sales, causing a lack of inventory and limited housing turnover.
The market is slowly shifting, with some inventory increases, particularly in multifamily properties.
Foreign investors remain eager to invest in U.S. real estate, but regulatory hurdles make capital movement difficult.

Commercial Real Estate Challenges

The office market faces long-term struggles due to remote work and changing business needs.
A 30-year correction process is underway, similar to how shopping malls evolved post-1994.
Repurposing office spaces will take significant capital and government intervention.
Despite current challenges, major cities like San Francisco and New York will eventually recover.

The Bay Area and Tech Industry Outlook

Silicon Valley and San Francisco’s Economic Health

California, like New York, faces urban challenges but remains a center for finance, technology, and culture.
Silicon Valley’s dominance in tech is secure, though remote work is decentralizing some business operations.
The Bay Area still attracts top talent, but companies are expanding operations in lower-cost states.

The Future of AI and Technology

AI-driven innovation is already boosting corporate profits, with 40% of S&P 500 companies leveraging AI in 2024.
AI adoption is still in its early stages, with vast potential for increasing productivity.
The cost of AI will decrease over time, accelerating its widespread use across industries.

Final Thoughts: Navigating an Uncertain Future

Investment Strategies for 2025

Expect market volatility—geopolitical events and economic shifts will require active management.
Foreign investment in U.S. real estate will increase, especially in desirable cities like San Francisco and New York.
Technology and AI advancements will reshape industries, creating opportunities for innovation-driven growth.

The Need for Adaptability

Economic and real estate trends will change rapidly in response to political and financial shifts.
Staying informed and agile is crucial for investors, businesses, and homeowners alike.
Collaborating with knowledgeable financial and real estate professionals will be key to making strategic decisions.

Summary of Key Takeaways

Tariffs and inflation will impact trade but are manageable.
The Fed will likely cut rates in 2025, helping mortgage rates decline.
The residential real estate market is constrained by locked-in low mortgage rates.
Commercial real estate faces long-term challenges but will evolve.
Silicon Valley remains the epicenter of tech, but decentralization is occurring.
AI will continue to drive economic growth and disrupt industries.
Foreign investment in U.S. real estate remains strong despite regulatory challenges.
2025 is a year of uncertainty, requiring strategic and informed decision-making.

The economy is shifting, not collapsing. Investors, homeowners, and businesses that stay ahead of trends and adapt will be in the best position to succeed.

Inflation, Interest Rates, Tariffs, and Trump – a talk with José Rasco