Quick shot: 2025: New year, same strong U.S. economy

As we all dust off our gym memberships and resolve to finally use them, the U.S. economy has its own resolutions for 2025: keep flexing those growth muscles and keep inflation in check. One of the most important drivers of U.S. growth is consumer spending and so far, the backdrop looks supportive for another strong year with the unemployment rate low and wages growing at a healthy clip. We also see business investment continuing at a moderate pace in part due to AI investment broadening out from the tech sector to the rest of the economy. Overall, we expect the U.S. economy to grow at around 2% this year – a more moderate pace of economic expansion versus last year but a still-healthy one.

On the inflation front, we see further progress towards the Federal Reserve’s 2% inflation target but with some potential bumps along the way. In particular, we are watching the impact that tariffs from the incoming Donald Trump administration may have on the economy. While the details are still being discussed, we expect a slight boost to overall inflation but still expect the Federal Reserve to deliver three 25-basis point interest rate cuts over the course of the year.

We're also keeping an eye on the other components of the administration's fiscal agenda – spending, deregulation and immigration – and the impact that these policies may have on growth and inflation. For now, we expect the net impact of fiscal policy to be moderate relative to the underlying strength of the economy.

For investors, the 2025 resolution is clear: keep building resilient portfolios to handle whatever economic twists and turns come our way. After all, just like our gym resolutions, it's all about staying strong and flexible.

Please see “Outlook 2025: Building on strength” for additional insights on our year-ahead outlook.

All market and economic data as of 01/06/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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