Economic forecast for 2025: 3 things to know

The 2025 economic forecast is one of modest growth, sticky inflation and higher for longer interest rates. 

The U.S. economy held strong in 2024, with solid momentum in the stock market, easing inflation and three interest-rate cuts. A relatively healthy job market and low unemployment continued to support consumer spending.

As the New Year begins, there are several things that Eric Freedman, chief investment officer at U.S. Bank, and Beth Ann Bovino, chief economist at U.S. Bank, are keeping an eye on: inflation, growth and the new administration.

1. With “sticky” inflation, interest rates may remain higher for longer.

The Federal Reserve (the Fed) has a 2% inflation target, and the annual inflation rate was 2.7% for the last 12 months through mid-December 2024. As a result, Bovino anticipates the Fed will only cut rates twice in 2025.

There are a few factors that may impact the Fed’s decision to raise or lower interest rates this year:

• Inflation
• The job market
• Consumer and business spending

Continued growth in the job market helped bolster consumer spending in 2024. However, both Bovino and Freedman say high prices remain challenging for many consumers, particularly costs of auto repair, travel, rent and mortgage payments, and insurance premiums.

2. Prepare for policy changes with a new administration in Washington, D.C.

The incoming administration’s policy agendas regarding taxes, trade, regulation and immigration will have implications for the economy and investment landscape in 2025.

Bovino says the administration’s proposals for tariffs and tax cuts have the potential to increase inflation. Tariffs may have the greatest impact on business and consumer trends, as tariff-induced price increases may be passed along to consumers. Freedman notes that goods from China, Mexico and Canada are likely to be affected first.  

While it’s likely many of the new administration’s proposals will become policy, timing and implementation are unknown. Both Freedman and Bovino recommend planning and engaging with a financial professional as good, proactive steps to take.

3. Anticipate both growth and more volatility in the markets.

The stock market had superb performance in 2024, and Freedman and team see a favorable, albeit muted, environment in 2025. Standout sectors include:

• Technology
• Real Estate
• Consumer Staples
• Industrials
• Healthcare (select companies)
• Utilities (select companies)

More important than what the markets or economy are doing is having and sticking to a financial plan. Focus on your financial goals and the time in the market it will take to achieve them rather than trying to time the market to score quick gains.

Want more details? Read the full interview with Freedman and Bovino or take a deep dive into the 2025 investment outlook for the markets and economy.