The U.S. economy is expected to grow by 2.7% according to International Monetary Fund estimates. Their original estimate of 2.2% was recently revised due to surprisingly robust domestic demand.1 It is worth noting that other analysts, including those at Goldman Sachs, also see a high 2% growth rate for the U.S. economy in 2025.2 The U.S. economy is poised to continue pulling ahead of Europe and other advanced economies due, in part, to its thriving tech sector, business friendly policies, and deep capital markets. Analysts anticipate that inflation will continue to ease through 2025 and eventually stabilize near the Fed’s target of 2%. In response, the Fed will likely continue to lower the Fed Funds rate to a more neutral rate of 3% to 3.25%, which analysts anticipate stabilizing by 2026.3 It is important that we pause here and reflect on the intention of an economic outlook.
A primary goal of an economic outlook is to assess where we are in the economic cycle, commonly referred to as the business cycle. The business cycle has four key stages: expansion, peak, contraction, trough. Though these stages can last for different periods of time, the cycle has been shown throughout history to repeat itself. For illustrative purposes, I find it helpful to think of the stages as seasons. Economic Winter can be referred to as the trough. We can refer to periods of economic expansion as the Spring. We will call economic peak, Summer, and economic contraction can be Fall.
Just like seasons, each economic stage has a set of markers that often accompany it. Economic expansion or Spring is often marked by low interest rates, increased employment, growing consumer confidence, higher wages, and strengthened consumer spending. Economic peak, or Summer, is usually marked by the high point of prices, economic growth, and changes in consumer behavior due to those increased costs. Economic contraction or Fall is marked by a decline in output, decline in consumer prices, increased unemployment, and decreased confidence. Finally, the trough or Winter marks the low point of the business cycle. Unemployment is at its highest and prices hit their bottom. This precipitates economic recovery leading back to Spring or expansion.
Now that you have made it through that description of economic stages, read the opening paragraph again. What season do you think U.S. economy is currently experiencing? You are probably right. Analysts at Fidelity believe the U.S. economy is somewhere between the mid and late stages of Spring, or economic expansion.4 With all this good news, the economic outlook is not without its uncertainties. 2025 has brought with it a new president in Donald Trump who will certainly have, as every new president does, a lot to prove in his first one-hundred days in office. There are three T’s that will likely have a substantial impact on the economy in 2025 and beyond: trade, tariffs, and taxes. Economists and analysts have plenty of opinions about how decisions and changes in each of these areas will positively or negatively impact America’s economic growth. More on that to come in our Spring 2025 Economic Outlook.
- https://www.imf.org/en/Blogs/Articles/2025/01/17/as-one-cycle-ends-another-begins-amid-growing-divergence
- https://www.morningstar.com/news/marketwatch/2025012041/the-us-economy-is-in-a-sweet-spot-but-markets-may-be-getting-one-thing-wrong-says-goldman-sachs
- https://www.spglobal.com/ratings/en/research/articles/241126-economic-outlook-u-s-q1-2025-steady-growth-significant-policy-uncertainty-13339574
- https://institutional.fidelity.com/app/item/RD_13569_40890/business-cycle-update.html