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Monthly update of The Conference Board's forecast for the US economy
U.S. election outcome uncertainty has lifted, but the unpredictability of the incoming administration policies still looms. While the US economy is set to start 2025 on strong footing after a year of surprisingly robust growth, a combination of proposed policies will likely weigh on growth and leave inflation elevated as the year progresses, resulting in a more patient policy stance from the Fed. The labor market strength supporting solid growth in personal income for consumers and the post-election revival of animal spirits in selected industries will likely contribute to continuation of strong growth momentum in H1. However, proposed tariff and immigration policies, if enacted, would likely weigh on growth, suggesting somewhat slower economic activity in H2, or even earlier. The extent of implemented tariffs, deregulation and changes to fiscal policy present material two-sided risks.Navigating Policy Uncertainty
The economy should expand at an upwardly revised pace of 2.3% in 2025 (from 2.0% in the December forecast) or 2.0% Q4/Q4 in 2025 (from 1.8%). U.S. real GDP growth in 2026 should settle at or slightly below its potential rate. Inflation should continue to normalize toward the Fed’s 2% target, but likely will stabilize there by the middle of 2026. Against this backdrop, the Fed will likely remain patient and leave rates unchanged in H1 2025, but could resume normalizing policy in July and cut rates three times by year-end, barring a significant pick-up in inflation on the back of aggressive tariff and immigration policies. In that case, the Fed could remain on pause for longer. The Fed will likely reach the long-run neutral rate target range of 3.00-3.25% by mid-2026. However, we believe the bar is too high for policy rate increases and we still see a rate cut as the next policy move.
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