What's next for public finance? Trends to watch in 2025

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With President Donald Trump's short-lived federal funding freeze and the potential end of the tax-exempt status on the horizon, the public finance arena is off to a rough start in 2025. 

Late in the evening on Jan. 27, the White House released a memorandum advancing Trump's plan to halt the disbursement of federal funds for programs that stand in direct conflict with the administration's orders and other policies. 

Impacted areas included "financial assistance for foreign aid, nongovernmental organizations, DEI" and more, but the freeze does not apply to programs that provide aid directly to individuals, according to the memo.

"It means no more funding for illegal DEI programs [and] it means no more funding for the Green New Scam that has cost American taxpayers tens of billions of dollars," Karoline Leavitt, White House press secretary, said during a press conference following the debut of the order.

Despite only lasting for two days before being formally rescinded on Jan. 30, the order generated a significant amount of fervor from local government leaders and public finance experts alike, who worried that the cuts would impact state-necessary funding. 

This drive has pushed roughly 22 Democrat-led states to sue the Trump administration for violations of the "Constitution and the Administrative Procedure Act by imposing a government-wide stop to spending without any regard for the laws and regulations that govern each source of federal funding," according to a press release.

The important thing for public finance experts to know is that while the memo fell short, the campaign to curtail what it deems as unnecessary government funding will continue.

Read more: State and local funds growing, but threatened

Equally important for the municipal market is the potential death of the tax-exempt status for bonds.

In speaking with The Bond Buyer's Scott Sowers, Emily Brock, director of the federal liaison office of the Government Finance Officers Association, said the organization is working with its partners in the Public Finance Network to outline to lawmakers the negative impacts of eliminating the exemption.

"We talk about tangible things in their district that they understand will be impacted if the tax exemption goes away," Brock said. "Then it's up to the investor community to tell the story about if you rip away the exemption from grandmas and grandpas, then you've got political suicide." 

As Republican changemakers determine what the cost of extending the soon-to-expire provisions of Trump's Tax Cuts and Jobs Act could look like, muni experts say that using models like dynamic scoring or a "current policy" baseline could play into what the final price tag looks like.

Read more: Muni advocates respond to tax-exempt threat

Dive into expert predictions for what the public finance market could look like in 2025, and what leaders need to be wary of.

Panelists at Annual Economic Outlook
Dr. Bob Froehlich, John Rogers, Jr. and Diane Swonk took the stage at the Executives' Club of Chicago's Annual Economic Outlook panel.
Executives' Club of Chicago

Finance experts weigh in on uncertain bond market future for 2025

The prospect of fewer rate cuts from the Federal Reserve, political policy questions and an ongoing host of fires in Los Angeles have created a fair amount of uncertainty in the markets — leaving many finance experts less than confident for 2025.

In a discussion at the Executives' Club of Chicago's Annual Economic Outlook panel earlier in January, KPMG Chief Economist Diane Swonk, Ariel Investments Chairman and Co-CEO John Rogers, Jr., and former Deutsche Asset Management Vice Chairman Dr. Bob Froehlich offered differing views of the year ahead.

"Now we've got a lot of policy changes coming, the level of inflation is still high and the Fed's battle against inflation is not yet over," Swonk said. "Policy is still technically in restrictive territory, and whatever the Fed doesn't do, the bond market will clearly do for it."

Read more: Chicago panel split on road ahead in 2025

Steve Skancke, chief economic advisor at Keel Point
“It's going to be a tough balancing act,” said Steve Skancke, chief economic advisor at Keel Point. “They want to have full employment, they want to contain inflation, and certainly, certainly, the imposition of tariffs will contribute to inflation, both with the immediate price increase and with the disruption of supply chains.”

"It's going to be a tough balancing act": Forecasting the FOMC in 2025

Members of the Federal Reserve's Open Market Committee have a lot to juggle in 2025, as numerous policy proposals from President Donald Trump and inflationary woes muddy the legislative waters for the year.

Steve Skancke, chief economic advisor at Keel Point, said in an interview with The Bond Buyer's Gary Siegel that he projects anywhere from one rate cut to four, leading to "a tough balancing act." between inflation and employment prospects across the country.

"They want to have full employment, they want to contain inflation, and certainly, certainly, the imposition of tariffs will contribute to inflation, both with the immediate price increase and with the disruption of supply chains," Skancke said.

Read more: Outlook 2025: What will the FOMC do?

Mark Kim talks about adding AI to EMMA
MSRB CEO Mark Kim. The MSRB is in for a busy year.
Dan Nelken/Dan Nelken

MSRB leaders see active regulatory year ahead

As top officials with the Municipal Securities Rulemaking Board work to enact revisions in the submission process for new issue disclosure and discussions surrounding dealer supervisory obligations, the growing list of initiatives stand to make 2025 an active year for the organization.

"Trying to provide an outlook for 2025 I think there's only one word that anyone can use, and that's uncertainty," Mark Kim, CEO of the MSRB, told The Bond Buyer's Kyle Glazier, adding that updates to the MSRB rulebook to create more pre-trade transparency are a prime focus for the regulator.

Other noteworthy efforts include eying how live quotes and bid-wanted requests are distributed and understood throughout the marketplace, as well as further regulatory easing on broker-dealer firms.

Read more: Outlook 2025: A busy year for the MSRB

President Donald Trump signs an executive order during a ceremony with Scott Bessent, U.S. Treasury secretary, left, and Howard Lutnick, chief executive officer of Cantor Fitzgerald LP and U.S. commerce secretary nominee, right, in the Oval Office of the White House.
Chris Kleponis/Bloomberg

Promised tariffs, immigration changes skew 2025 economic forecasts

Wealth management experts are predicting strong economic performance in 2025. But ongoing promises for tariff and immigration reforms out of the Trump administration could signal clouds on the horizon.

In speaking with The Bond Buyer, James Ragan, director of wealth management research for D.A. Davidson, said tariffs and immigration policies could have an inflationary effect if a rise in deportations stifles labor supply.

"[If] we get a lot of deportations, we start to limit labor supply that could pressure wages, which might be good for consumer spending over time, but would probably lead to a higher inflation than expected," Ragan said.

But the 10-year yield and the curve's positive slope are fueling views that the bond market will remain strong through this year.

Read more: Outlook 2025: Tariffs, immigration cloud projections of strong economy

Tom Kozlik of Hilltop Securities
"Lawmakers will need enhanced pay-fors, putting a substantial target on the municipal bond tax exemption," said Tom Kozlik, managing director and head of public policy & municipal strategy for Hilltop Securities.

Tax policy uncertainties give muni market experts pause

Tom Kozlik, managing director and head of public policy & municipal strategy for HilltopSecurities, worries  2025 could spell the end of the municipal bond tax exemption.

"Lawmakers will need enhanced pay-fors, putting a substantial target on the municipal bond tax exemption," Kozlik said. "I think there is a 50% or greater chance the municipal bond tax exemption will be significantly curtailed or even completely eliminated in 2025." 

The fear comes from President Donald Trump's landmark Tax Cuts and Jobs Act of 2017, which capped the state and local tax deduction and also did away with advance refundings of tax-exempt bonds. Deductions are limited to $10,000, but there have been state-issued workarounds used by business owners.

Read more: Outlook 2025: future of tax policy causing concern

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