Expectations of slow growth in the US economy in 2025 and increased inflation

Economic forecasts for 2025 indicate that the US economy will grow, but at a slower pace than in 2024, as inflation will remain above the Federal Reserve’s target under President-elect Donald Trump’s policies that limit production while stimulating spending. The greatest risk is not a recession but rather limited production capacity with… Decreased immigration, according to what Forbes magazine reported.

US economy performance in 2024

The US economy has grown well into 2024 and the last two quarters in particular have grown faster than the long average while the Fed’s current GDP estimate for the fourth quarter continues to trend above average and employment has grown every month this year.
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Consumer spending is up nicely, rising about 4% over the past 12 months after adjusting for inflation, which says most people who wanted a job got one at a time when wages rose faster than inflation.

US economic forecasts for 2025

Labor supply is the biggest constraint on economic growth in 2025 and overall spending is expected to be healthy given the momentum expected for 2025 and continued federal government spending.
Interest rates may be somewhat restrictive of overall economic growth. Overall, spending is expected to be fully sufficient to maintain the economy’s ability to produce at full capacity.
Immigration has enabled good job growth in the past two years but President Trump will begin imposing strict restrictions on border crossings immediately after his inauguration and this will reduce the rate of economic growth.
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But the rate of gains will be slower than in the past two years at a time when inflation-adjusted GDP grew by 2.7% in the four quarters through the third quarter of 2024.

US economic growth next year

This number may decline to 2.1% by the end of 2025 and 1.6% by the end of 2026.
Slower growth will not constitute a recession: after all, the economy is still growing, but the pace of growth will be weaker.
Most companies will not feel the difference between current growth rates and upcoming growth, and small changes will outweigh changes in supply and demand for individual companies.
However, companies that expand to take advantage of growing economic activity may find themselves incurring costs that are not offset by revenue.

US inflation prospects

Inflation will not decline much in this environment and the Fed was hoping to reach its goal of increasing prices by 2%, but this did not happen in 2024 and likely will not happen in 2025. The problem is simply that too many dollars are chasing too few. Extremely good quality.
The Fed may ease short-term interest rates twice as much as it is currently expected to do but it wants to see some progress in inflation first.

Impact of Trump’s tariffs

The reality is that tariffs will complicate Fed policy, as most economists believe that tariffs will prompt a one-time rise in the price level but will not lead to an increase in the inflation rate year over year.
Based on these considerations, the most likely path for interest rates in 2025 is stability, with the possibility of a reduction of a quarter of a percentage point or two.

Risks to the economic outlook

International conflicts are a major threat to the American economy, but in the absence of major changes, the global economy appears stable.
Fox Economics’ forecasts for 2025 and 2026 indicate that global GDP will grow at a stable pace.
Although the trade war will not push the global economy into recession, it may certainly lead to a decline in growth, as the most affected industries enter a state of actual recession.