Economic Outlook - April 2025
- At its most recent meeting in March, the Federal Open Market Committee (FOMC) left the federal funds rate unchanged at a range of 4.25% to 4.50%, continuing a pause on the interest-rate-cutting cycle that started in September 2024. The FOMC continues to signal the potential for two rate cuts later this year, which would bring the federal funds rate down to a range of 3.75% to 4.0%. Importantly, the Committee stated that uncertainty around the economic outlook has increased, noting that it is “unusually elevated” due to myriad changes in policies by the Trump administration, citing tariffs, immigration limits, and tax policy. Fed Chair Jerome Powell indicated that the Committee was focusing on evaluating the effects of the range of potential policies and was in “no hurry” to change policy. That being said, the Fed sees a mildly stagflationary outlook, with slower economic growth and higher inflation – historically an undesirable combination.
- In the Fed’s latest quarterly Summary of Economic Projections – known as the “Dot Plot” to many – the median gross domestic product growth projection was lowered across the board for the next three years, with the U.S. economy projected to grow by 1.7%, 1.8%, and 1.8% from 2025 through 2027, respectively. The median projection was previously at 2% or higher for the next two years. The median unemployment rate forecast was effectively unchanged at 4.4% in 2025 and 4.2% over the long run. On inflation, the median estimate for core personal consumption expenditures was raised to 2.8% in 2025, 2.2% in 2026, and 2.0% in 2027. The Fed projects that inflation will remain elevated due to tariffs. The median projection for the fed funds rate was held at 3.9% in 2025, and the long-run neutral rate was assumed to be 3.0%.
- The latest inflation data confirmed that inflation was firmer in February, even before the effects from higher tariffs start to hit households and businesses. The core personal consumption expenditures index climbed 2.8% year over year in February. This measure, which excludes the more volatile food and energy costs, presented mixed results and an increase from January’s 2.6%. The protraction of core inflation, which has been persistently above the Federal Reserve’s target, will likely keep the Fed from lowering rates more quickly as they work to determine how federal policy changes affect economic conditions.
- The U.S. economic outlook remains uncertain, in part due to the current administration’s inexact approach to trade tariffs, near daily news on government spending reductions, and concerns on persistent inflation. U.S. household finances remain steady as the personal saving rate increased to 4.6% and incomes climbed by 0.8% for the month of February. Consumer spending also recovered in February, rising 0.4% compared to January’s decline of 0.3%. While the U.S consumer has thus far demonstrated resiliency in the face of these wayward times, tariffs and trade wars are likely to have some negative impact and will be monitored as they are absorbed by consumers and businesses alike.
Sources: FactSet, Dow Jones Publishing, Bloomberg, Bureau of Labor Statistics, U.S. Federal Reserve, Yardeni Research
Disclosure: This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.
For more information, call 617-557-9800, or email info@welchforbes.com.