U.S. Economy 2025: 3 Major Predictions
A Pew Research poll in 2024 revealed that only 23% of Americans viewed the U.S. economy positively. However, data from the Bureau of Economic Analysis (BEA) painted a different picture, showing the economy grew from $27.72 trillion in 2023 to $29.17 trillion in 2024. With more income and spending driving growth, 2025 holds a mix of promise and challenges. Gregory Daco, EY's chief economist, shared his insights on what to expect this year.
1. U.S. as a Global Growth Leader and Disruptor
The U.S. is set to remain the world’s largest economy and lead global growth, driven by income and productivity increases and easing monetary policies. However, this leadership comes with disruption risks. A survey by KPMG found that nearly 70% of U.S. companies worry about market disruptors impacting their growth.
Daco points to pro-business policies under the new administration, such as tax cuts and deregulation, as potential accelerators for U.S. growth. These policies could positively impact global economies reliant on the U.S. Yet, if inflation rises, it may slow U.S. growth and hinder global economic activity.
2. Gradual Federal Rate Cuts
In 2024, the Federal Reserve cut interest rates three times, ending the year with a range of 4.25% to 4.5%. For 2025, Daco predicts more cautious rate reductions, anticipating a total cut of 0.75% across the year, implemented in March, June, and September.
Higher inflation risks may emerge in the latter half of 2025 due to potential tariffs, increasing imported goods’ prices. Daco suggests this environment will encourage the Fed to adopt a slower, more gradual monetary easing strategy.
3. Rising Unemployment Rates
The U.S. unemployment rate remained steady at 4.1%–4.2% for much of 2024. However, Daco forecasts it will rise above 4.5% in 2025 due to weaker labor demand and a slowdown in hiring. Businesses have become more cautious about hiring decisions, with a 10-year low in the hiring rate reported by Indeed in mid-2024.
In 2024, the economy added 2.2 million jobs, averaging 186,000 new jobs per month. For 2025, Daco predicts job growth will slow significantly to 75,000–100,000 new jobs per month, reflecting weaker demand and more selective hiring practices.
Outlook for 2025
Despite challenges like rising unemployment and cautious monetary policy, the U.S. economy is positioned to lead global growth in 2025. However, uncertainties surrounding inflation, tariffs, and labor demand could temper progress. For businesses and policymakers, navigating these dynamics will be crucial to ensuring sustained economic momentum.
