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Interest Rate Predictions for the Next 10 Years: 2025-2035

May 16, 2025 by Marco Santarelli

Interest Rate Predictions for the Next 10 Years (2025-2035)

Ever wonder where your money—and the cost of borrowing it—is headed? It's a big question, and one that I think about a lot, especially when planning for the future. When we talk about interest rate predictions next 10 years, we're trying to get a clearer picture of what things might look like from roughly 2025 through 2035.

Based on what the experts are saying and what the current economic tea leaves suggest, it looks like we can expect interest rates, including the key Federal Funds Rate, to gradually come down from their current levels over the next couple of years, and then likely settle into a more stable, moderate range longer term, perhaps around 2.5% to 3.5%. Of course, no one has a perfect crystal ball, but we can make some pretty educated guesses.

As I sit here in May 2025, it feels like we've been on a bit of an economic rollercoaster, especially with inflation and the steps taken to cool it down. Interest rates are a huge part of that story. They affect everything from the monthly payment on your mortgage to the returns you might see on your savings account. So, let's dive in and explore what the road ahead might look like.

Interest Rate Projections for the Next 10 Years (2025-2035)

Where We Stand Right Now (May 2025)

To understand where we're going, it's always good to know where we are. Right now, the Federal Funds Rate, which is the main interest rate set by our nation's central bank, the Federal Reserve (often just called “the Fed”), is sitting in a target range of 4.25% to 4.50%. The actual rate that banks lend to each other overnight, the effective federal funds rate, is hovering around 4.33%.

Now, you might remember rates being higher not too long ago – they peaked at 5.33% back in August 2023. The Fed has made some cuts since then, holding steady since December 2024. Why? Well, the Fed has two main jobs: keeping employment high and prices stable (which means keeping inflation in check). These rate levels are their way of balancing those goals based on how the economy's been performing, especially with inflation and the job market.

Other rates that hit closer to home for many of us are also important:

  • The average 30-year fixed mortgage rate is currently around 6.83%. Ouch, right? That definitely impacts what people can afford when buying a home.
  • The 10-year Treasury yield, which is what the government pays to borrow money for 10 years and influences many other rates, was about 4.33% as of March 2025.

So, that's our starting point. Rates are elevated compared to much of the last decade, but they're off their recent highs.

Gazing into the Near Future: Short-Term Projections (2025–2027)

When I look at what the folks at the Federal Reserve themselves are predicting, along with other big players like the Congressional Budget Office (CBO) and major banks, a pattern starts to emerge for the next couple of years.

The Fed's own team, the Federal Open Market Committee (FOMC), gives us regular updates. Their March 2025 projections for the Federal Funds Rate look something like this:

Year Median Federal Funds Rate Projection
2025 3.9%
2026 3.4%
2027 3.1%

Source: Federal Reserve, March 2025 Summary of Economic Projections

What does this table tell me? It suggests a gradual decline. The Fed isn't expecting to slash rates dramatically overnight, but rather to ease them down bit by bit. This thinking is echoed by others:

  • The CBO largely agrees, seeing the rate around 3.7% by late 2025 and 3.4% by late 2026.
  • Goldman Sachs, a big investment bank, thinks we might see three small cuts (0.25% each) in 2025, bringing the rate to between 3.5% and 3.75% by the end of this year.
  • Morningstar, another respected financial research firm, is a bit more optimistic about rates coming down faster, predicting 3.50%–3.75% by the end of 2025, then potentially dipping to 2.25%–2.50% by mid-2027.

So, why this gentle slide downwards? The general idea is that inflation, which has been a big headache, is expected to continue cooling off and get closer to the Fed's target of 2%. At the same time, economic growth is expected to be steady, not too hot and not too cold. In that kind of environment, the Fed can afford to lower rates a bit to make sure the economy keeps chugging along without reigniting inflation. For me, this feels like a cautious optimism – hoping for a “soft landing” where inflation is tamed without causing a major recession.

The Long View: What Might Happen from 2028 to 2035?

Predicting things five, seven, or even ten years out is where it gets really tricky. Think about all the unexpected things that can happen in a decade! However, economists still try to map out a general direction.

The Fed has what they call a “longer-run” projection for the Federal Funds Rate. This is essentially where they think the rate should be when the economy is in perfect balance – not booming, not busting, and inflation is at its 2% target. Their current estimate for this neutral rate is 3.0%.

  • The CBO thinks rates might settle a bit higher, around 3.4%, after 2026.
  • Morningstar, with its more aggressive short-term cuts, sees rates potentially staying lower, in that 2.25%–2.50% range even into the longer term if their mid-2027 forecast holds.

So, if I had to hazard a guess for 2035, I'd say the Federal Funds Rate is likely to be somewhere between 2.5% and 3.5%. This range reflects the different views on where that “neutral” point might actually lie. If inflation behaves and growth is moderate, we could hover around that 3.0% mark. But, and this is a big “but,” major economic curveballs – think new trade wars, big changes in government spending, or even unexpected technological leaps – could easily push rates higher or lower. For instance, Goldman Sachs has pointed out that things like new tariffs could increase the risk of a recession, which would probably lead the Fed to cut rates more to support the economy.

It's Not Just About the Fed: Other Rates We Watch

The Federal Funds Rate is like the sun in the solar system of interest rates – it has a gravitational pull on many others.

10-Year Treasury Yield

This is a big one. It influences mortgage rates and all sorts of other borrowing costs. As of March 2025, it was at 4.33%.

  • Analysts polled by Bankrate see it potentially falling to around 3.55% by December 2025.
  • The CBO expects longer-term rates like this to ease through 2026 and then find a more stable level. Historically, the 10-year Treasury yield tends to be about 1% to 2% higher than the Federal Funds Rate. So, if the Fed's rate eventually settles around 3.0%, we might see the 10-year yield in the 4.0% to 5.0% range in the long run. From my perspective, this makes sense because investors usually demand a bit extra for tying up their money for a longer period and taking on more risk compared to an overnight bank loan.

30-Year Fixed Mortgage Rates

This is the one that many families care most about. At 6.83% in May 2025, it's a significant hurdle for homebuyers.

  • Good news might be on the horizon, though. Fannie Mae (a major player in the mortgage market) forecasts mortgage rates could dip to 6.3% by the end of 2025 and maybe even 6.2% by 2026. This would be a welcome relief, making homes a bit more affordable. I believe even small drops here can make a big difference in monthly payments and overall housing market activity.

The Big Movers: Factors That Will Shape Interest Rates

So, what makes these rates go up or down? It's not random. Several powerful forces are at play.

  • Inflation Trends: This is numero uno for the Fed. Their target is 2% inflation (measured by something called the PCE index). The CBO thinks we'll see inflation around 2.2% in 2025, 2.1% in 2026, and then settle at 2.0% from 2027 all the way to 2035. If inflation stays stubbornly high, the Fed will likely keep rates higher for longer. If we surprisingly see deflation (prices falling), they'd cut rates fast. My take? The path to 2% might be bumpier than the forecasts suggest. Global supply chains are still reconfiguring, and energy prices can be wildcards.
  • Economic Growth (GDP): How fast is the economy growing? The CBO is forecasting real GDP (meaning, adjusted for inflation) to grow by 1.9% in 2025 and 1.8% in 2026, then stabilize at 1.8% per year through 2035. If growth is much stronger than expected, the Fed might raise rates to prevent overheating. If we dip into a recession, they'll cut rates to try and stimulate things. I personally feel that 1.8% growth is modest and suggests an economy that isn't putting too much upward pressure on rates.
  • Government Finances (Fiscal Policy): This is a biggie that sometimes gets overlooked. The CBO projects that federal deficits (the amount the government overspends each year) and the national debt are going to keep rising. When the government borrows a lot of money, it can push up interest rates for everyone. It’s like more people trying to drink from the same well – the price (interest rate) goes up. The CBO even notes that the cost of paying interest on our national debt is projected to exceed defense spending by 2025! In my experience, persistently large deficits tend to put a floor under how low rates can go.
  • Global Economic Weather: We don't live in a bubble. What happens in other countries matters. Trade policies, like the tariffs Goldman Sachs mentioned, can disrupt supply chains, affect prices, and slow down growth. A major economic slowdown in Europe or Asia could also drag our economy down, prompting lower rates here. Conversely, strong global growth could boost our exports and potentially lead to higher rates. I always keep an eye on international developments because they can have surprisingly direct impacts.
  • People Trends (Demographics and Structural Stuff): Things like an aging population and slower growth in the number of people working can mean the economy's overall growth potential is lower. If the economy can't grow as fast as it used to, it might not need (or be able to handle) super high interest rates. This is a slow-moving factor, but over a decade, it can really shape the underlying “natural” rate of interest.
  • My Wildcard – Technology and Geopolitics: I'd add two more factors here that are hard to quantify but hugely important.
    • Technological Advancements: Think about AI, automation, and green energy. If these boost productivity significantly, it could lead to stronger non-inflationary growth, potentially allowing rates to be structured differently. It's a bit of an unknown, but a powerful potential force.
    • Geopolitical Stability: Unexpected conflicts or major shifts in global power dynamics can send investors flocking to “safe” assets (like U.S. Treasuries, pushing their yields down) or cause inflationary supply shocks (pushing rates up). This is the true “black swan” territory.

What This All Means for You, Me, and Everyone Else

Okay, so rates are likely to go down a bit, then level off. What does that actually mean for our daily lives and financial decisions?

1. For Consumers:

  • Borrowing: If rates fall as projected, it could become cheaper to get a mortgage, take out a car loan, or carry a balance on a credit card. That projected dip in mortgage rates to around 6.2%–6.3% could make a real difference for homebuyers.
  • Saving: The flip side is that the interest you earn on savings accounts or CDs might also come down. It's always a trade-off.
  • My advice for consumers: If you have variable-rate debt, you might see some relief. If you're looking to buy a home, patience might pay off with slightly lower rates. For savers, locking in longer-term CD rates now, while they are still relatively high, might be something to consider.

2. For Investors:

  • Bonds: When interest rates fall, existing bonds (which pay a fixed rate) become more valuable. So, a declining rate environment can be good for bond prices. However, the income you get from new bonds will be lower.
  • Stocks: Lower interest rates can be good for the stock market. It makes borrowing cheaper for companies to invest and expand, and it can make stocks look more attractive compared to bonds. However, those tariff risks Goldman Sachs mentioned could throw a wrench in the works for certain sectors.

My insight for investors: Diversification will be key. A mix of assets can help navigate a period where rates are falling but economic uncertainties remain. Consider what a “neutral” rate environment means for long-term portfolio allocation.

3. For Businesses:

  • Investment: Cheaper borrowing costs could encourage businesses to invest in new equipment, technology, or expansion.
  • Challenges: Businesses will still need to deal with whatever inflation pressures remain and navigate any trade disruptions or economic slowdowns.
  • My perspective for businesses: Agility is crucial. Being able to adapt to changing economic conditions and borrowing costs will separate the winners from the losers. Scenario planning for different rate environments would be wise.

5. For Policymakers (The Fed and Government):

  • The Fed will continue its delicate balancing act: keeping inflation low while supporting employment.
  • Government officials will have to grapple with the rising cost of servicing the national debt. As the CBO pointed out, interest costs are becoming a massive budget item.
  • My commentary for policymakers: The easy decisions are behind us. Managing debt sustainability while fostering long-term growth in a potentially lower-rate, modest-growth world will require some very smart (and likely tough) choices.

A Final Thought: 

So, the general consensus for interest rate projections next 10 years points towards a gradual easing from where we are in mid-2025, followed by a period of stabilization, likely in that 2.5% to 3.5% range for the Federal Funds Rate. This should ripple through to mortgage rates and other borrowing costs, offering some relief.

However, if there's one thing I've learned from watching markets and economies, it's that projections are just that – projections. They are educated guesses based on current information. The real world has a funny way of throwing curveballs. The factors I mentioned – inflation, growth, government policy, global events, and even technology – are all dynamic and can change the script.

My best advice? Use these projections as a guide, not a guarantee. Stay informed, be flexible in your financial planning, and prepare for a range of outcomes. The path over the next decade won't be a perfectly straight line, but by understanding the forces at play, we can all make better decisions along the way.

“Position Your Investments for the Next Decade”

With interest rates expected to fluctuate over the next 10 years, smart investors are locking in real estate opportunities now to build long-term passive income and hedge against rising costs.

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Speak to a Norada investment advisor today (No Obligation):

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Recommended Read:

  • Will the Bond Market Panic Keep Interest Rates High in 2025?
  • Interest Rate Predictions for 2025 by JP Morgan Strategists
  • Interest Rate Predictions for Next 2 Years: Expert Forecast
  • Fed Holds Interest Rates But Lowers Economic Forecast for 2025
  • Fed Indicates No Rush to Cut Interest Rates as Policy Shifts Loom in 2025
  • Fed's Powell Hints of Slow Interest Rate Cuts Amid Stubborn Inflation
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  • Market Reactions: How Investors Should Prepare for Interest Rate Cut
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Filed Under: Economy, Financing, Mortgage Tagged With: Bonds, Economy, Fed, Federal Reserve, Interest Rate, mortgage

10-Year Treasury Yield Rises After US-China 90-Day Tariff Deal

May 13, 2025 by Marco Santarelli

10-Year Treasury Yield Rises After US-China 90-Day Tariff Deal

The bond market reacted when the US-China 90-Day Tariff Truce was announced. This temporary break in the trade war between the world's two largest economies led investors to become a bit less scared about the future, causing them to sell off safe-haven assets like U.S. Treasury bonds. This selling pressure pushed the price of bonds down, and as you probably know, when bond prices fall, their yields – specifically the 10-year Treasury yield – go up.

How the US-China 90-Day Tariff Truce Sent 10-Year Yields Climbing

Think of it like this: when there's a lot of worry in the air about things like a potential recession caused by escalating tariffs, people want the security of government bonds, even if the return isn't huge. This increased demand pushes bond prices up and yields down. But when a bit of good news comes along, like this tariff truce, that worry eases. Investors feel more comfortable putting their money into potentially higher-growth areas, and they're less desperate for the safety of bonds. Hence, they sell bonds, prices drop, and yields rise.

This wasn't just a tiny blip either. The announcement caused a noticeable jump in the 10-year Treasury yield, reaching its highest point in about a month. To put it in numbers, we saw the yield climb to around 4.45%, a significant increase from the lower levels we saw earlier in April. This jump tells us a story about how sensitive the bond market is to the ebbs and flows of global trade tensions.

A Look Back: Tariffs and the Bond Market's Twists and Turns

This recent reaction wasn't out of the blue. We've seen this movie before, haven't we? Remember back in early April when there was news about new tariffs being slapped on Chinese goods? Initially, investors got spooked and flocked to the safety of Treasury bonds, causing yields to dip. But then, almost as quickly as they fell, yields bounced back up. This showed us that while tariff escalations can initially trigger a flight to safety (pushing yields down), they can also lead to fears of higher inflation and slower growth down the line, which can ultimately push yields higher.

It's almost like the market is constantly trying to figure out the puzzle. Is a tariff hike going to lead to a recession, making safe bonds attractive? Or will it lead to higher prices, making those fixed-income returns less appealing? The US-China 90-Day Tariff Truce news fell squarely into the “de-escalation” category. Historically, when there's a pause or a rollback of tariffs, the immediate reaction is often a sell-off in bonds, leading to higher yields. This truce basically signaled that the worst-case scenario of ever-increasing tariffs might be avoided, at least for now.

What the Experts Are Saying: A Collective Sigh of Relief (with a Pinch of Salt)

It wasn't just the numbers on the screen that told the story. Analysts and market strategists around the world had plenty to say about this 90-day tariff truce and its impact. Many pointed out that the scale of the tariff reductions was actually quite surprising. Some even used phrases like “much bigger than expected,” which highlights the sense of relief that rippled through the markets.

However, this optimism came with a healthy dose of caution. Experts reminded us that this is just a temporary pause. The underlying issues between the US and China haven't magically disappeared. As one analyst put it, it's a “long-term positive plus 90 days of uncertainty.” The tariffs are significantly lower during this truce (U.S. tariffs on some Chinese imports dropped from 145% to 30%, and China's duties on some U.S. goods fell from 125% to 10%), but the fact remains that tariffs still exist.

Here are some key takeaways from the expert commentary:

  • Relief is Temporary: While the market breathed a sigh of relief, the 90-day window means the threat of renewed or even higher tariffs looms in the future.
  • Uncertainty Remains: Even with the reduced tariffs, the fundamental trade disputes between the two nations are still unresolved, creating ongoing uncertainty for businesses and investors.
  • Impact on Growth: While the truce is seen as positive for short-term growth by easing supply chain concerns, the lingering tariffs and potential for future escalation still pose a risk.
  • Inflationary Pressures: Even with the tariff reductions, some level of tariffs remains, which will likely continue to contribute to inflationary pressures, albeit less than before.

The Fed's Perspective: Less Pressure for Rate Cuts?

The Federal Reserve also weighed in on the implications of the US-China 90-Day Tariff Truce. One Fed official noted that this development should help to ease some of the inflation that was being driven by the trade war. This good news also led to a slight shift in market expectations for future interest rate cuts. With the immediate threat of escalating tariffs diminished, the pressure on the Fed to lower rates to stimulate the economy seemed to lessen, at least in the short term.

However, it's important to remember that even with the reduced tariffs, they still exist, and a Fed Governor pointed out that a 30% tariff will still lead to higher prices and slow down the economy to some degree. So, while the truce might have pushed out expectations for rate cuts, it didn't completely eliminate them. The Fed will likely continue to monitor the situation closely, paying attention to both inflation data and economic growth indicators.

Beyond Bonds: A Ripple Effect Across Global Markets

The impact of the US-China 90-Day Tariff Truce wasn't limited to just the bond market. We saw a broader “risk-on” sentiment take hold across global markets. Stock markets in the US, Europe, and Asia generally rallied on the news. This makes sense because a de-escalation in trade tensions is seen as a positive for corporate earnings and overall economic activity.

Interestingly, the US dollar also strengthened against many other currencies. This could be because the truce was seen as particularly beneficial for the US economy in the short term. On the other hand, safe-haven assets like gold, which tend to do well when investors are worried, saw their prices fall as the immediate fear of a full-blown trade war subsided.

China's markets also reacted positively. The Chinese stock market went up, and the yuan, their currency, reached a six-month high. This reflects the fact that Chinese officials also viewed the truce as a positive development for their businesses and for global stability.

The Bigger Picture: Buying Time, Not Solving the Problem

While the US-China 90-Day Tariff Truce provided a welcome break from the escalating trade tensions, it's crucial to understand what it really represents. In my opinion, it's more of a temporary pause – a chance for both sides to come back to the negotiating table and try to find a more lasting solution. It doesn't erase the fundamental disagreements that led to the trade war in the first place.

Think about it: even with the reduced tariffs during this 90-day period, US consumers are still facing an average tariff level that's higher than it's been since the 1930s. This tells us that while the immediate pain might be lessened, the underlying cost of the trade war hasn't gone away entirely. Estimates suggest that the tariffs put in place are still expected to raise US price levels and dampen economic growth to some extent.

So, while I was as relieved as many others to see this truce, I also know that we're not out of the woods yet. The next 90 days will be crucial. Will this temporary break lead to a more permanent agreement, or will we see tensions flare up again? That's the big question mark hanging over the global economy right now, and it's something that will continue to influence the bond market and beyond.

“Secure Real Estate While Treasury Yields Climb”

As the 10-Year Treasury yield rises following the US-China tariff agreement, real estate remains a reliable hedge against market volatility and shifting bond returns.

Norada offers cash-flowing investment properties that outperform traditional fixed-income assets—ideal for building passive income in today’s rate environment.

HOT NEW LISTINGS JUST ADDED!

Talk to a Norada investment advisor today (No Obligation):

(800) 611-3060

Get Started Now

Recommended Read:

  • Interest Rate Predictions for the Next 10 Years: 2025-2035
  • Will the Bond Market Panic Keep Interest Rates High in 2025?
  • Interest Rate Predictions for 2025 by JP Morgan Strategists
  • Interest Rate Predictions for Next 2 Years: Expert Forecast
  • Fed Holds Interest Rates But Lowers Economic Forecast for 2025
  • Fed Indicates No Rush to Cut Interest Rates as Policy Shifts Loom in 2025
  • Fed's Powell Hints of Slow Interest Rate Cuts Amid Stubborn Inflation
  • Fed Funds Rate Forecast 2025-2026: What to Expect?
  • Interest Rate Predictions for 2025 and 2026 by NAR Chief
  • Market Reactions: How Investors Should Prepare for Interest Rate Cut
  • Interest Rate Predictions for the Next 3 Years
  • Impact of Interest Rate Cut on Mortgages, Car Loans, and Your Wallet
  • Interest Rate Predictions for Next 10 Years: Long-Term Outlook
  • When is the Next Fed Meeting on Interest Rates?
  • Interest Rate Cuts: Citi vs. JP Morgan – Who is Right on Predictions?
  • More Predictions Point Towards Higher for Longer Interest Rates

Filed Under: Economy, Financing, Mortgage Tagged With: 10-Year Treasury Yield, Bonds, Economy, Federal Reserve, Interest Rate

Will the Bond Market Panic Keep Interest Rates High in 2025?

May 12, 2025 by Marco Santarelli

Will the Bond Market Panic Keep Interest Rates High in 2025?

The recent turmoil in the bond market has understandably left many wondering about the future of interest rates. As of May 12, 2025, the 10-year U.S. Treasury yield stood at a notable 4.382%, signaling a period of stress in this critical sector of the global financial system. The big question on everyone's mind, and what we'll delve into here, is whether this bond market panic will keep rates high. My take is that while the immediate reaction has been an increase in yields and thus interest rates, the long-term trajectory is far from set in stone and hinges on a complex interplay of factors.

Will the Bond Market Panic Keep Interest Rates High in 2025?

To really understand what's happening now and what might happen next, it's important to grasp some fundamental concepts about the bond market. Think of bonds as essentially IOUs. When governments or companies need to borrow money, they issue these bonds. Investors who buy them are lending money and in return, they get periodic interest payments, known as coupons, and the original amount they lent back when the bond matures.

Now, here's a key point: bond prices and their yields move in opposite directions. When a lot of people want to sell bonds (increasing supply or pressure), the price goes down. Because the fixed coupon payments are now a larger percentage of the lower price, the yield – the actual return an investor gets – goes up.

The 10-Year U.S. Treasury yield is a really big deal because it acts as a benchmark for so many other interest rates in the economy. This includes things like mortgage rates, the interest you pay on corporate loans, and even how much the government itself has to pay to borrow money. A higher 10-year Treasury yield generally tells us that investors want more compensation for holding onto longer-term debt. This could be because they expect higher inflation down the road, they see more economic uncertainty, or they perceive a greater risk.

What's Causing the Current Bond Market Turmoil?

Lately, the bond market has definitely been a bit rocky. We've seen some pretty significant and rapid sell-offs, leading to those higher Treasury yields. From my perspective, this isn't just one thing happening; it's a combination of different forces all hitting at once:

  • Trade Tensions: Remember those back-and-forth tariffs between the U.S. and China? Well, they're still casting a shadow of uncertainty over the global economy. When businesses and investors get nervous about trade wars, they tend to become more cautious. We've seen some investors pulling back from assets they see as riskier, and that can sometimes include selling off bonds, even U.S. Treasuries which are usually seen as a safe harbor in stormy times. This selling pressure pushes bond prices down and yields up.
  • Debt Ceiling Concerns: Earlier in 2025, the U.S. government bumped up against its debt ceiling. This is like reaching the limit on your credit card. While the Treasury Department has been using what they call “extraordinary measures” to keep things running, it creates a sense of unease. A limited supply of new Treasury bonds being issued can actually lead to higher yields because the demand for existing bonds might outstrip what's available. It introduces a bit of a liquidity squeeze.
  • Federal Reserve Policy Expectations: The Federal Reserve, our central bank, plays a huge role in all of this. They've already cut interest rates three times in 2024, bringing their main rate (the federal funds rate) down to a range of 4.25%-4.50%. Now, everyone's trying to guess what they'll do next. Some folks are worried that if inflation doesn't cool down or if the economy stays surprisingly strong, the Fed might not cut rates as much or as quickly as some hope. This expectation of potentially higher rates for longer can also push bond yields higher.

It's been a bit unusual recently because we've seen both the stock market and the bond market declining at the same time. Usually, when stocks get shaky, investors tend to flock to the relative safety of bonds. But the factors I've mentioned above have kind of messed with that traditional pattern, making people even more concerned about the stability of the bond market.

Here's a quick look at some of the drivers:

Factors Driving Bond Market Panic Impact on Yields
Trade Tensions Increase Yields increase due to risk aversion and economic uncertainty.
Debt Ceiling Concerns Yields increase due to reduced bond supply and liquidity issues.
Fed Policy Expectations Yields increase if investors anticipate higher rates for longer.

How Does This Impact Interest Rates for Everyone Else?

The bond market's ups and downs have a very real effect on the interest rates we see in our daily lives:

  • Mortgages: When those Treasury yields go up, so do mortgage rates. We've already seen some back and forth, with the average 30-year fixed rate hovering around 6.64% in early 2025. While that's a bit lower than the 7.04% we saw in late 2024, it's still quite a bit higher than what we were used to before the pandemic. For people looking to buy a home, this means higher monthly payments.
  • Consumer and Business Loans: Things like credit card interest rates, car loan rates, and the cost for businesses to borrow money are also tied to those Treasury yields. If yields stay high, it becomes more expensive for individuals to borrow and for businesses to invest and expand.
  • Economic Growth: Higher interest rates can act like a brake on the economy. When borrowing becomes more expensive, people might be less likely to spend, and businesses might put off investments. This is a real concern, especially when we're already dealing with global trade issues and other uncertainties.

The current 10-year Treasury yield of 4.382% is definitely higher than the lows we saw in 2024, but it's also not the highest we've seen historically during periods of market stress. However, the speed at which we've seen these yields rise recently is what's making people nervous about the possibility of sustained high rates.

So, Will Rates Actually Stay This High?

This is the million-dollar question, isn't it? Whether this bond market panic will translate into persistently high interest rates over the long haul depends on how several key factors play out:

  • The Resolution of Trade Tensions: If the U.S. and China can actually reach a solid trade agreement, I think that would be a big sigh of relief for investors. It could boost confidence and reduce the need for those higher yields as a safety cushion. Easing tariffs could also help bring down some of those inflationary pressures we've been seeing, which might give the Fed more room to cut rates. On the flip side, if trade tensions get even worse, investors might continue to demand higher yields to compensate for the added economic uncertainty.
  • Getting Past the Debt Ceiling Drama: A swift and clean resolution to the U.S. debt ceiling issue would bring some much-needed stability to the Treasury market. Knowing there's a steady supply of bonds should help ease those liquidity concerns and potentially bring yields down. However, if there are more political battles and delays, that could keep the market on edge and yields elevated.
  • What the Federal Reserve Does Next: The Fed's moves are going to be crucial. As of March 2025, they've held their key interest rate steady. Their own forecasts suggest they might cut rates twice more in 2025, which, if it happens, could help bring down those longer-term bond yields. But, and this is a big but, if inflation proves to be stickier than they hope or if the economy stays stronger than expected, the Fed might decide to hold off on those cuts, meaning rates could stay higher for longer.
  • What the Market is Expecting: Right now, the market seems to be pricing in a scenario where rates might not fall dramatically in 2025, but they're also not expected to shoot way up. For instance, I've seen predictions from Bankrate suggesting the Fed might cut rates three more times in 2025. The Mortgage Bankers Association is also forecasting a gradual decline in mortgage rates into 2026. However, these are just forecasts, and they all assume that some of these current uncertainties will start to ease. If those trade tensions or debt ceiling issues drag on, things could look quite different.
  • The Global Economic Picture: If we see a slowdown in the global economy, that could actually increase demand for safe assets like U.S. Treasuries, which could, counterintuitively, push yields lower. But if the U.S. economy remains resilient while other parts of the world struggle, investors might still demand higher yields here to account for potential inflation risks.

Here's a summary of how these factors might influence future rates:

Factors Influencing Future Rates Likely Impact
Trade Agreement Lower yields and interest rates.
Debt Ceiling Resolution Lower yields if resolved; higher if there are delays.
Fed Rate Cuts Lower yields if they are implemented.
Global Slowdown Lower yields due to increased demand for safe assets.
Persistent Inflation Higher yields if the Fed holds off on rate cuts.

What the Experts Are Saying and My Own Thoughts

When I look at what various experts are saying, it's clear there's no single, unified view. Some optimists believe this bond market jitters are just temporary. They think that once those trade issues calm down and the debt ceiling is sorted, we'll see investor confidence bounce back, leading to lower yields and interest rates. The Fed's projected rate cuts also lend some support to this idea.

On the other hand, the pessimists are more worried. They point to ongoing geopolitical risks and the stubbornness of economic uncertainty as reasons why yields might stay elevated. If that trade war escalates or if inflation doesn't come down as much as hoped, the Fed might feel stuck keeping rates higher, which would put more pressure on bond prices.

Personally, I think the recent behavior of the bond market suggests that investors are bracing for a scenario where rates might stay higher for a bit longer than we initially anticipated. However, I don't necessarily see this as meaning rates will stay at these exact levels forever. Instead, it feels like the market is adjusting to a new reality where uncertainty is just a bigger part of the equation.

In Conclusion

The recent bond market panic has definitely played a role in pushing Treasury yields higher, and this, in turn, affects the interest rates we see throughout the economy. However, whether this panic will lead to a sustained period of high rates is still very much up in the air.

If we see some positive developments – like a resolution to trade disputes and a smooth handling of the debt ceiling – there's a good chance that bond yields could stabilize or even decline, which would eventually lead to lower interest rates. But if these issues persist or get worse, we could be looking at a scenario where borrowing costs remain elevated for consumers and businesses.

Right now, the Federal Reserve seems to be treading carefully, holding rates steady but signaling a potential for future cuts. However, the market's reaction suggests that there's still a lot of nervousness about what the future holds.

Ultimately, the direction of interest rates will depend on how those global trade issues, our domestic fiscal policy, and the Fed's response to economic data all come together. While the bond market's recent volatility has created some short-term pain, the long-term impact on rates will really hinge on how these bigger, broader forces play out.

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  • Interest Rate Predictions for 2025 by JP Morgan Strategists
  • Interest Rate Predictions for Next 2 Years: Expert Forecast
  • Fed Holds Interest Rates But Lowers Economic Forecast for 2025
  • Fed Indicates No Rush to Cut Interest Rates as Policy Shifts Loom in 2025
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Filed Under: Economy, Financing, Mortgage Tagged With: Bonds, Economy, Fed, Federal Reserve, Interest Rate, mortgage

Interest Rate Predictions for 2025 by JP Morgan Strategists

May 11, 2025 by Marco Santarelli

JP Morgan Predicts Fed Interest Rate Cut in Second Half of 2025

According to a recent analysis from JP Morgan, the Federal Reserve should not start cutting interest rates until the second half of 2025. This prediction comes as the Fed maintains a cautious “wait-and-see” approach, keeping rates steady for now amidst a complex economic backdrop. As someone who's been watching these financial currents for a while, this forecast feels like a realistic assessment of the pressures and uncertainties our economy is currently navigating.

Interest Rate Predictions for 2025 by JP Morgan Strategists

In their May 2025 meeting, the Federal Open Market Committee (FOMC) decided to keep the benchmark interest rate within the 4.25% to 4.5% range. This wasn't a surprise to the markets, which had largely anticipated this decision. What's interesting is the reasoning behind this continued pause.

The Fed's statement highlighted a few key points:

  • The economy is still expanding at a moderate pace.
  • The labor market remains strong.
  • Inflation is slightly above their long-term target of 2%, though significant progress has been made in bringing it down from previous highs.

However, and this is a crucial point, the Fed also acknowledged a growing uncertainty in the economic outlook since their March meeting. They specifically pointed to increased risks of both higher inflation and higher unemployment, partly due to evolving trade policies. This creates a tricky situation. Raising rates further to combat inflation could risk pushing unemployment up, while cutting rates prematurely could reignite inflationary pressures. It's like trying to walk a tightrope in a windy storm.

Why the Delay? JP Morgan's Perspective

JP Morgan's strategists believe that the Fed is in a position where their current policy stance is “in a good place.” This allows them to observe how economic conditions evolve in the coming months before making any significant moves. Vinny Amaru, a Global Investment Strategist at JP Morgan Wealth Management, noted that the recent economic data shows resilience in the labor market and consumer spending, even as general sentiment data has softened. This divergence – what people are doing versus what they're saying – is likely contributing to the Fed's hesitancy. They need to see concrete signs of weakening in consumer activity before they feel confident enough to lower rates.

As someone who analyzes economic indicators regularly, I can see the logic here. Consumer spending has been a surprisingly strong pillar of the economy, even in the face of higher prices. Until that starts to meaningfully cool down, the Fed will likely remain cautious about easing monetary policy.

What This Means for Investors: Navigating the Uncertainty

So, what should investors make of all this? JP Morgan suggests a few key strategies to navigate this period of uncertainty:

  • Know Your Risk Tolerance: With potential for continued market volatility due to unclear tariff policies, it's crucial to ensure your investment portfolio aligns with your long-term financial goals and your comfort level with risk.
  • Watch Economic Data Closely: As Fed Chair Jerome Powell emphasized, the risks of both higher inflation and unemployment have increased. Pay close attention to key data releases, such as the Consumer Price Index (CPI) and jobs reports, as these will heavily influence the Fed's future decisions. The CPI report scheduled for May 13th, 2025, as mentioned in the J.P. Morgan analysis, will be particularly important.
  • Stay Diversified: This is investment advice 101, but it's especially relevant in uncertain times. Diversifying your portfolio across different asset classes and geographies can help mitigate risk. As Amaru rightly points out, the volatility experienced this year underscores the potential benefits of this strategy.

In my opinion, these are sound recommendations. Trying to time the market based on Fed decisions is often a losing game. A well-diversified portfolio, aligned with your risk tolerance and long-term goals, is always a prudent approach.

Looking Ahead: The Second Half of 2025 and Beyond

While JP Morgan anticipates rate cuts in the latter half of 2025, they also emphasize that uncertainty remains elevated. The interplay of inflation, unemployment, and trade policies will be key determinants of when and how aggressively the Fed might move.

It's important to remember that economic forecasts are just that – forecasts. They are based on the best available data and analysis at a given time, but the future is inherently unpredictable. As investors and individuals, we need to stay informed, be prepared for different scenarios, and adjust our strategies as needed.

In Conclusion: A Patient Approach in an Uncertain Climate

The message from JP Morgan's analysis is clear: the Federal Reserve is likely to remain patient and observe how the economic landscape evolves before initiating interest rate cuts. While the expectation is for easing to begin in the second half of 2025, the path forward is far from certain. For investors, this means a continued focus on risk management, staying informed, and maintaining a long-term perspective. It's a time for cautious optimism, but also for preparedness.

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With the Fed decision looming, investors are seeking stability and strong returns from real assets.

Norada offers carefully selected, cash-flowing investment properties—perfect for navigating uncertain markets.

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Talk to a Norada investment counselor today (No Obligation):

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Filed Under: Economy, Financing, Mortgage Tagged With: Economy, Fed, Federal Reserve, Interest Rate, mortgage

Federal Reserve Keeps Interest Rate Unchanged in May 2025

May 7, 2025 by Marco Santarelli

Federal Reserve Keeps Interest Rate Unchanged in May 2025

On May 7, 2025, the Federal Reserve decided to keep the key interest rate unchanged, maintaining it within the target range of 4.25% to 4.5%. This decision, while seemingly straightforward, sends ripples throughout our financial world, impacting everything from the cost of borrowing for a new car to the potential for businesses to expand and create jobs.

This move by the Fed isn't entirely surprising, especially when you consider the tricky situation we're in. We're seeing an economy that's still showing signs of decent growth and a job market that, while cooling a bit, remains fairly strong. However, the elephant in the room is still inflation, which, despite some easing, remains “somewhat elevated,” as the Fed itself acknowledged.

Federal Reserve Keeps Interest Rate Unchanged in May 2025

Why the Hold? Navigating a Tightrope Walk

In my opinion, the Fed's decision to hold rates steady is a testament to the delicate balancing act they're trying to perform. They're walking a tightrope between taming inflation and avoiding a sharp economic downturn that could lead to higher unemployment. Think of it like trying to adjust the temperature in a room – you don't want to overshoot and make it too cold, just like the Fed doesn't want to raise rates too aggressively and trigger a recession.

Here are some key factors I believe contributed to this decision:

  • Persistent Inflation: While inflation has come down from its peak, it's still above the Fed's comfort zone. They need more convincing data that price increases are consistently trending downwards before they consider lowering borrowing costs.
  • Resilient Labor Market: The job market, despite some moderation, continues to be a source of strength in the economy. Strong employment can put upward pressure on wages and, consequently, prices. The Fed is likely waiting for more significant signs of cooling in the labor market.
  • Uncertainty from Trade: The Fed specifically noted that volatile trade activity is affecting the economic data they rely on. This is a clear nod to the ongoing impact of tariffs, particularly those imposed on China. It creates a layer of uncertainty that makes it harder to predict future price movements and economic growth.
  • Stagflation Concerns: The term stagflation – a nasty combination of slow economic growth and high inflation – was even highlighted by some analysts following the Fed's statement. While Fed Chair Jerome Powell didn't explicitly say they expect stagflation, the fact that the risk of both higher unemployment and higher inflation has increased is a serious concern.

The Impact on Your Wallet and the Wider Economy

So, what does this decision mean for you and the overall economy? Here’s how I see it playing out:

  • Borrowing Costs Remain Elevated: For now, the cost of borrowing money for things like auto loans, credit cards, and personal loans will likely remain at their current, higher levels. This means you'll continue to pay more interest when you take out a loan.
  • Mortgage Rates in Limbo: While home mortgage rates aren't directly tied to the federal funds rate, they are influenced by government borrowing costs, which have also remained high. So, don't expect any significant drop in mortgage rates in the immediate future.
  • Savings Rates: On the brighter side, higher interest rates generally mean you can earn more on your savings accounts and fixed-income investments.
  • Business Investment: Businesses might be more cautious about investing in new projects due to the higher cost of borrowing, potentially slowing down economic growth.
  • Stock Market Volatility: The stock market is likely to remain sensitive to any news suggesting a potential shift in the Fed's stance. Uncertainty about the future path of interest rates can lead to market fluctuations.

Looking Ahead: What's Next for Interest Rates?

Predicting the future is always tricky, but based on the current economic data and the Fed's cautious tone, I believe they will likely continue to hold interest rates steady in the near term, perhaps through their next meeting in June 2025, as some analysts predict.

The big question is when, and if, the Fed will start to cut rates. In my view, this will largely depend on:

  • Clear and Consistent Decline in Inflation: The Fed needs to see more concrete evidence that inflation is sustainably moving towards their 2% target.
  • Cooling Labor Market: A more significant slowdown in job growth and potentially an increase in the unemployment rate could give the Fed more confidence to lower rates.
  • Resolution of Trade Uncertainties: Less volatility in trade and a clearer picture of the impact of tariffs would reduce some of the economic uncertainty.

Differing Perspectives and the Tariff Wildcard

It's important to remember that not everyone at the Fed agrees on the best course of action. Some officials might be more inclined to start cutting rates sooner, especially if they believe that the price pressures from tariffs will be temporary.

Adding another layer of complexity is the stance of the Trump administration on tariffs. As we saw just before the Fed's announcement, there's no indication that these tariffs will be rolled back anytime soon. This creates a unique challenge for the Fed, as tariffs can lead to higher prices for consumers and businesses, potentially fueling inflation. Fed Chair Powell himself acknowledged that the inflationary impact of tariffs could be either short-lived or long-lasting, depending on their extent and duration.

The Crucial Role of Consumer Spending

One of the most important factors keeping the economy afloat right now is the resilience of American consumers. Despite higher prices and borrowing costs, people are still spending. As one market strategist pointed out, even as big institutional investors might be selling, individual retail investors have been net buyers of stocks for a record number of weeks. This suggests a fundamental belief in the long-term prospects of the market and a willingness to keep their money invested. This continued consumer demand is a key factor the Fed will be watching closely.

My Takeaway: Patience and Vigilance

In my expert opinion, the Federal Reserve is right to be patient at this juncture. Rushing to cut interest rates prematurely could risk reigniting inflationary pressures, which would ultimately be more damaging to the economy in the long run. Conversely, raising rates too aggressively could stifle economic growth and lead to unnecessary job losses.

The current situation demands a data-dependent approach. The Fed needs to carefully monitor inflation, the labor market, and the impact of trade policies before making any significant moves. As an observer of the economic scene, I anticipate a period of continued vigilance and careful deliberation from the central bank. The path forward is uncertain, but the Fed's commitment to both price stability and maximum employment will guide their decisions in the months to come.

“Turnkey Real Estate Investing With Norada”

With the Fed decision looming, investors are seeking stability and strong returns from real assets.

Norada offers carefully selected, cash-flowing investment properties—perfect for navigating uncertain markets.

Over “100” HOT NEW LISTINGS JUST ADDED!

Talk to a Norada investment counselor today (No Obligation):

(800) 611-3060

Get Started Now 

Recommended Read:

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  • Fed Holds Interest Rates But Lowers Economic Forecast for 2025
  • Fed Indicates No Rush to Cut Interest Rates as Policy Shifts Loom in 2025
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Bond Market Today and Outlook for 2025 by Morgan Stanley

May 2, 2025 by Marco Santarelli

Bond Market Outlook for 2025 by Morgan Stanley

What's the vibe in the bond market for 2025? According to Morgan Stanley, it's all about being selective and flexible. With uncertainty swirling around U.S. fiscal policy and the economy, investors should carefully consider specific sectors like corporate credit, securitized credit, and emerging-market debt to potentially find value and diversify their portfolios. Instead of blindly following benchmarks, it's time to roll up our sleeves and find the hidden gems.

Bond Market Today and Outlook for 2025

Let's be honest, the market feels a bit like a rollercoaster right now. We're all trying to figure out what's next, especially with potential shifts in U.S. fiscal policy creating waves. Heightened volatility seems to be the name of the game, and it’s likely to stick around for a while. This isn’t necessarily a bad thing, though! Volatility can create opportunities for savvy investors who know where to look.

Think of it like this: imagine you're at a crowded flea market. There are tons of things, some valuable, some not so much. If you just grabbed the first thing you saw, you might not get the best deal. But if you took your time, looked closely, and knew what you were looking for, you could find a real treasure. That's the approach we need to take with the bond market in 2025.

Morgan Stanley suggests a few key principles to guide our strategy:

  • Select Actively: Don't just blindly follow the herd. Actively manage your portfolio, looking for securities that are mispriced. Exploit those market inefficiencies to outperform passive benchmarks.
  • Focus on Credit Quality and Risk-Adjusted Returns: Dig deep into the specifics of each bond. Don't be swayed by tight spreads on investment-grade or expensive high-yield bonds.
  • Optimize the Mix: Diversification is still key. A mix of U.S. Treasuries, corporate bonds, securitized credit, and emerging-market debt can help you ride out the bumps.
  • Assess Macro Conditions: Keep a close eye on those big-picture factors, like potential shifts in fiscal policy, monetary policy, and their ripple effects on credit markets.

Finding Opportunities in a Selective Market

So, where should we be focusing our attention? Here are some areas Morgan Stanley highlights:

Corporate Credit: Strength in Selectivity

Despite all the uncertainty, it's good to remember that corporate balance sheets are generally in pretty good shape as we enter 2025.

  • Investment-grade company fundamentals are still looking strong, offering some stability.
  • However, be aware of how tariffs might affect global supply chains, especially in sectors like autos and retail.
  • Instead of broad exposure through passive indices, focus on high-quality issuers with strong balance sheets.
  • High-quality bonds may be more attractive than bank loans, especially given slow economic growth and a potentially dovish Federal Reserve.

I think the key takeaway here is to do your homework. Don't just assume that all corporate bonds are created equal. Look for those companies that are well-managed, have strong financials, and are likely to weather any potential storms.

Securitized Credit: A Solid Performer

Securitized credit (think asset-backed securities, commercial mortgage-backed securities, and mortgage-backed securities) performed well in 2024 and the beginning of 2025.

  • Agency mortgage-backed securities (MBS) have even outperformed investment-grade and high-yield sectors.
  • MBS and asset-backed securities often offer higher-yield spreads than traditional investment-grade corporate bonds.
  • Strong consumer credit fundamentals and the resilience of U.S. households support structured credit markets.
  • You can also move up the capital structure by investing in higher-rated tranches (AAA or AA), capturing attractive risk-adjusted returns.

My take on this is that securitized credit offers a good balance of risk and reward. It's not as flashy as some other investments, but it can provide a steady stream of income and help to diversify your portfolio.

Emerging-Market Debt: Targeting Stability

Emerging markets can be a bit of a wild card, but there are opportunities to be found if you're careful.

  • Look for countries with strong fundamentals and central banks willing to cut rates.
  • Target countries with stable growth, improving fiscal positions, and proactive monetary policies.
  • Continued U.S. dollar weakness could be a positive for emerging-market currencies.
  • Focus on emerging-market countries that are more shielded from U.S. policies.

Personally, I believe that emerging markets require a deeper level of due diligence. It's not enough to just look at the headline numbers. You need to understand the political and economic context of each country to make informed decisions.

Riding the Yield Curve: Curve Steepeners

The yield curve is expected to steepen, which means that long-term bond yields could rise relative to short-term yields.

  • The U.S. Treasury yield curve steepened after the tariff announcement.
  • Consider curve steepeners (overweighting shorter-term bonds matched with an underweight to longer-term bonds).
  • Duration management is also crucial, especially with the Federal Reserve expected to cut rates gradually.

From my perspective, paying attention to the yield curve is critical for fixed-income investing. It offers key insight into how the market perceives the economic outlook and, thus, provides valuable hints for positioning your portfolio.

The Big Picture: Navigating Volatility for Potential Gains

Even with all the uncertainty, fixed income can still play a vital role in portfolios, providing a strong negative correlation to risky assets. Institutional investors should focus on those key areas: being active, prioritising credit quality, optimizing mix, and assessing macro conditions. U.S. fixed-income allocations may provide the potential for income, total returns, and diversification.

Starting yields are also at their highest levels since the financial crisis. Historically, high starting yields have been a reliable indicator of future returns, suggesting that bonds with higher yields at the time of purchase may offer greater total returns over time.

Ultimately, the 2025 bond market is all about being selective and flexible. By focusing on specific sectors, carefully evaluating credit quality, and paying attention to the overall macroeconomic environment, we can navigate the volatility and potentially find some attractive opportunities.

Disclaimer: I'm just sharing my thoughts and insights based on the Morgan Stanley report. This isn't financial advice, and you should always do your own research before making any investment decisions.

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The Risk of New Tariffs: Will They Crash the Stock Market and Economy?

May 2, 2025 by Marco Santarelli

The Risk of New Tariffs: Will They Crash the Stock Market and Economy?

Well, this is the question everyone's asking right now. With the recent implementation of widespread reciprocal tariffs, including a 10% baseline on almost all imports and much higher rates on goods from countries like China, the EU, and Japan, the air is thick with worry. Will these new tariffs crash the stock market and economy?

The short answer, based on what we're seeing and what history tells us, is a strong yes, there's a very real risk of significant damage to both. The sheer scale and breadth of these tariffs are unlike anything we've seen in a long time, and the initial reactions from the markets and economists are painting a concerning picture. Let's dig deeper into why this could be the case.

Will the New Tariffs Crash the Stock Market and Economy?

Understanding the Scope and Intent Behind Trump's Tariffs

President Trump has made it clear that these tariffs are meant to be a powerful tool. He frames them as a way to bring back American manufacturing, reduce our trade deficit (which stood at a massive $1.2 trillion in 2024), and ultimately make America the dominant economic force once again. This isn't a surgical approach like some of his earlier tariffs on steel or specific Chinese goods. This time, it's a much wider net, hitting imports from almost every corner of the globe.

The idea behind what his administration calls “reciprocal tariffs” is to mirror the trade barriers that they believe other countries unfairly impose on American goods. They're targeting not just direct tariffs but also things like currency manipulation and different regulations that they see as hurdles for U.S. exports. Beyond the economic arguments, some of the earlier tariffs this year, like those on Canada and Mexico, were even tied to issues like immigration and the flow of illegal drugs.

Listening to President Trump's announcements, you hear a strong sentiment that America has been taken advantage of for too long. He talks about other countries “looting” and “plundering” our economy. His promise is a revitalization of American manufacturing and a new economic “boom” fueled by these tariffs. While that's a compelling vision, the immediate response from the financial world and the expert analysis suggest that the path to that boom might be paved with significant trouble.

The Stock Market's Wild Reaction: A Sign of Deeper Concerns

Since President Trump's election in late 2024, the stock market has been on a rollercoaster. Initially, there was a wave of optimism, fueled by promises of deregulation and tax cuts that are typically seen as good for business. We saw the S&P 500 and Nasdaq reaching new highs. However, that initial enthusiasm has definitely faded as these tariff threats have become reality.

The day after these broad reciprocal tariffs were announced on April 2nd, 2025, was a stark reminder of the market's anxieties. The S\&P 500 plunged by 4.8%, the biggest single-day drop since the early days of the pandemic in June 2020. That one day alone wiped out a staggering $2.4 trillion in market value. The Nasdaq took an even bigger hit, falling by 6%, and Dow futures were down by over 1,000 points. By March 11th, the S\&P 500 had erased all its gains since the election, officially entering correction territory (a drop of 10% or more from its recent peak).

Looking at specific companies gives you a clearer picture of the impact. Major multinational corporations like Nike, Apple, and Stellantis, which rely heavily on global supply chains, saw significant drops in their stock prices. Retailers like Five Below and Dollar Tree, which depend on imported goods to keep their prices low, were hit even harder. Even tech giants like Nvidia and Tesla, despite their more domestic focus, weren't immune.

Why this sell-off? Well, tariffs essentially increase the cost of bringing goods into the country. This squeezes the profit margins of companies unless they can successfully pass those higher costs onto consumers. But if they do that, it risks reducing demand for their products. Adding to this is the unpredictable nature of President Trump's trade policy.

The constant shifts and threats create a huge amount of uncertainty, and as David Bahnsen, a chief investment officer at the Bahnsen Group, rightly pointed out, “The market volatility is much less about the bad news of tariffs and much more about the uncertainty.” Investors hate not knowing what's coming next, and these tariffs have definitely delivered a heavy dose of unpredictability.

The Broader Economic Implications: Growth, Inflation, and the Shadow of Recession

The worries extend far beyond just the stock market. Economists generally agree that tariffs act like a tax on imports, and ultimately, those costs get passed on to businesses and consumers in some way. The Tax Foundation, even before these latest tariffs, estimated that President Trump's earlier proposal of a universal 20% tariff could shrink the U.S. GDP by 0.7% and cost the average American household around $1,900 per year, before any retaliation from other countries. Given that these new tariffs average around 16.5% across all imports – the highest we've seen since 1937 – the potential economic damage could be even more severe.

Think about specific industries. The auto industry, with its deeply interconnected supply chains across North America, could see a big impact from the 25% tariff on Canadian and Mexican goods. Experts estimate this could add around $3,000 to the price of a car. Our grocery bills could also rise significantly.

Mexico supplies over 60% of the vegetables we import and nearly half of our imported fruits and nuts. Tariffs on these goods will likely translate to higher prices at the supermarket. Even the housing market, already struggling with material shortages, could become more expensive with tariffs on things like Canadian lumber and Mexican gypsum. As Erica York of the Tax Foundation put it, “No matter what channel the price impact takes, it’s Americans who are hurt.”

Then there's the very real threat of inflation. A survey by the University of Chicago earlier this year found that consumers expected the prices of imported goods to rise by 10% and domestic goods by 14% within a year under a hypothetical 20% tariff. If businesses do pass on these higher costs, it could reignite inflation, making the Federal Reserve's job of managing prices even harder.

And let's not forget about retaliatory tariffs. China, the EU, and other trading partners have already announced or threatened to impose their own tariffs on American goods. This would hurt U.S. exporters, like our farmers selling soybeans and corn, and manufacturers of things like aircraft and machinery.

The big question looming over everything is whether these tariffs could push the U.S. economy into a recession. Kathy Bostjancic of Nationwide predicts that with retaliation, U.S. GDP growth could fall to just 1% in 2025, down from 2.5% in 2024. JP Morgan is now putting the odds of a global recession by the end of the year at 60%, up from 40%.

Businesses facing higher costs and a lot of uncertainty might decide to hold off on hiring new people or investing in their operations. Consumers, seeing higher prices and feeling less secure, might cut back on their spending. As Peter Ricchiuti of Tulane University wisely said, “It’s a self-fulfilling prophecy. If you think a recession is coming, you stop capital expenditures, you don’t hire, and then you work yourself into one.”

The Counterargument: Tariffs as a Tool for Economic Leverage

Of course, President Trump and his supporters argue that these fears are overblown. They often point to his first term, where tariffs on steel, aluminum, and some Chinese goods, they say, led to increased domestic investment (like the $15.7 billion in new steel facilities) and job creation without causing runaway inflation. A 2024 study by the Economic Policy Institute even claimed “no correlation” between those earlier tariffs and overall price increases.

Commerce Secretary Howard Lutnick argues that by opening up foreign markets to American goods, these tariffs will actually lead to lower grocery prices in the long run. Vice President JD Vance frames the tariffs as a matter of national security, essential for rebuilding our domestic manufacturing capabilities.

The administration also emphasizes that there are exemptions in place, such as for goods compliant with the USMCA trade agreement and for certain critical minerals. President Trump himself tends to dismiss any market downturns, confidently predicting a future economic boom: “The markets are going to boom, the stock is going to boom, and the country is going to boom.” His supporters see these tariffs as a necessary negotiating tactic, putting pressure on both allies and adversaries to lower their own trade barriers or face the consequences.

The Global Reaction: Trade Wars and Shifting Alliances

The ultimate impact of these tariffs will depend heavily on how the rest of the world responds. We're already seeing China retaliate with tariffs on American goods like soybeans and pork, a familiar move from the previous trade tensions. The European Union, facing a 20% tariff, is considering its own countermeasures but seems to prefer negotiation, with Ursula von der Leyen calling the tariffs “a blow to the world economy.” Canada's Justin Trudeau and Mexico's Claudia Sheinbaum have also hinted at potential tit-for-tat actions. Even Japan, despite a 24% tariff, seems to be taking a more cautious approach for now, likely wary of upsetting its crucial alliance with the U.S.

The danger here is a full-blown trade war. This could significantly reduce the volume of international trade and slow down global economic growth. Smaller economies that rely heavily on exports to the U.S., like Lesotho in textiles, could face severe economic hardship. Even our allies, like South Korea and Taiwan (hit with 25% and 32% tariffs respectively), might start to reconsider their strategic relationships if they feel unfairly targeted. Alienating key partners could also undermine President Trump's broader geopolitical goals, especially when it comes to countering China's growing influence.

My Take: A Risky Gamble with Potentially High Costs

Looking at all the evidence, it's hard for me to be optimistic about the economic impact of these new tariffs. While the goal of strengthening American manufacturing and reducing trade imbalances is understandable, this broad, aggressive approach feels like a very risky gamble.

In the short term, I expect the stock market to remain volatile. The uncertainty alone is enough to keep investors on edge. We've already seen significant drops, and further retaliatory actions from other countries will likely add to the downward pressure. While markets can recover from shocks, the level of disruption these tariffs could cause is substantial.

Economically, the risks seem even greater. Higher prices for consumers are almost inevitable, which could put a strain on household budgets that are already dealing with inflation. Businesses will face increased costs, which could lead to reduced investment and hiring. The threat of a recession is definitely looming larger with these new trade barriers in place.

While the argument that tariffs can be a useful negotiating tool has some merit, the scale and scope of these tariffs feel more like a sledgehammer than a finely tuned instrument. The potential for unintended consequences and the risk of escalating trade disputes with multiple countries simultaneously are significant.

Ultimately, whether these tariffs will “crash” the stock market and economy is difficult to say with absolute certainty. There are many factors at play. However, based on the initial market reaction, the analysis from numerous economists, and historical precedents of trade wars, the probability of significant negative impacts is high. For everyday Americans, this could mean higher prices and a more uncertain economic future. For investors, navigating this period will likely require caution and a long-term perspective. This is a high-stakes experiment, and I'm worried that the costs could outweigh any potential benefits.

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Are Interest Rate Cuts by Federal Reserve Coming Soon?

April 18, 2025 by Marco Santarelli

Are Interest Rate Cuts by Federal Reserve Coming Soon?

Interest rate cuts are likely on the horizon for 2025. The Federal Reserve has already started easing monetary policy in 2024 and is expected to continue down this path in 2025 to further bring the federal funds rate down to a range of 3.75%-4.00% by year-end.

It's like this: the economy has been walking a tightrope for a while now. The Fed has been carefully adjusting the balance, trying to keep inflation under control without causing a stumble that leads to a recession. But, given the state of things, it's probable that they'll ease off the breaks by cutting interest rates in the coming months.

Are Interest Rate Cuts by Federal Reserve Coming Soon?

The Current Economic Situation: A Tricky Balancing Act

Let's be real, things are a bit murky right now. As we move into April 2025, the US economy is showing a mixed bag of signals.

  • GDP Growth: The Fed is projecting a 1.7% GDP growth for this year, which isn't terrible, but it's definitely a step down from earlier predictions. It is a sign that the economy is slowing down a bit.
  • Unemployment: The unemployment rate is expected to creep up to 4.4%. That's still relatively low, but it suggests that the job market is beginning to cool off.
  • Inflation: This is the big one. The Personal Consumption Expenditures (PCE) index, a key measure of inflation, is at 2.7%. The core PCE is at 2.8%. Both of these are above the Fed’s target of 2%. However, the good news is that they are both showing signs of calming down.
Economic Indicator Current (April 2025) Projected (End of 2025) Source
Federal Funds Rate 4.25%-4.5% 3.75%-4.00% FOMC Projections
Real GDP Growth ~2.0% (2024) 1.7% FOMC Projections
Unemployment Rate ~4.0% 4.4% FOMC Projections
PCE Inflation 2.7% 2.7% FOMC Projections
Core PCE Inflation 2.8% 2.8% FOMC Projections

The Trump Tariff Wildcard

Now, here's where things get even more interesting and uncertain. Former President Trump's tariff policies are throwing a wrench into the gears. These tariffs, designed to protect American industries, are actually pushing up prices on imported goods. As a result, trading partners are firing back with their own tariffs. This can lead to a slowdown in economic activity and even more inflation.

The Fed itself has acknowledged this, stating that the economic outlook is increasingly uncertain because of these trade policies.

What the Fed is Saying (and Doing)

So, what's the Fed's game plan? At their meeting back in March, they decided to hold the federal funds rate steady at 4.25%-4.5%. This comes after three rate cuts in 2024. The members of the Federal Open Market Committee (FOMC) are currently expecting two more cuts to happen this year.

The thing about the Fed is that they are trying to balance two things:

  • Maximum employment: They want as many people as possible to have jobs.
  • Price stability: They want to keep inflation under control.

Fed Chair Jerome Powell has emphasized that they're ready to adjust their approach based on what the economic data tells them. If the economy stays strong and inflation doesn't fall to 2%, they'll keep things as is. But if the job market weakens or inflation drops faster than expected, they are going to ease up on policy accordingly.

They've also announced plans to slow down quantitative tightening starting in April, which basically means they're easing up on their efforts to shrink the money supply.

All of this boils down to a wait-and-see approach. The Fed is going to watch the data closely and make decisions based on what they see.

The Market's Bets: A Different Story?

Here's where it gets interesting. While the Fed is projecting two rate cuts, the financial markets are expecting more aggressive action. As of early April, traders in the futures market are betting on the Fed starting to cut rates as soon as June. They're also predicting a total of three 25 basis point cuts by the end of the year.

Why the difference in opinion? Well, the markets are seemingly factoring in a more pessimistic outlook. They are seemingly more concerned about tariffs potentially leading to higher inflation and slower growth, which would force the Fed to cut rates earlier and more aggressively.

What's Going to Determine the Rate Cuts?

So, what are the factors that will ultimately decide when and how much the Fed cuts rates?

  • Inflation: If inflation keeps falling, it gives the Fed room to cut rates. But if tariffs cause prices to rise, it could throw a wrench into the works.
  • Economic Growth: If the economy slows down further, it could push the Fed to cut rates to stimulate demand. However, if the economy stays strong, the Fed might hold off to prevent things from overheating.
  • Tariff Policies: This is a big unknown. Tariffs could drive up inflation while also slowing down economic activity. The Fed's response will depend on how these policies actually play out.
  • Global Economic Conditions: Weakness in other major economies could hurt US exports and slow down growth, potentially leading the Fed to cut rates.

What This Means for You: Borrowing Costs and the Housing Market

Lower interest rates generally mean lower borrowing costs. That could make loans for things like homes, cars, and businesses more affordable. For homeowners, it could translate to lower mortgage rates.

However, it's important to remember that the relationship between the federal funds rate and mortgage rates isn't always direct. Mortgage rates are influenced by a lot of other factors, such as long-term bond yields, investor expectations, and inflation forecasts. So, even if the Fed cuts rates, mortgage rates might not drop significantly.

A lot of the expected rate cuts are already priced into the bond market, so we might not see a huge change in mortgage rates even if the Fed actually does cut rates. Also, if inflation expectations remain high because of tariffs, long-term rates could stay elevated.

In conclusion, lower rates can have a positive effect on the market, but it is only one contributing factor, and the effect can also be mitigated if other things are not in sync.

My Two Cents

Honestly, trying to predict the Fed's next move is like trying to predict the weather. There are so many factors at play, and things can change quickly.

Personally, I think the Fed is going to be very cautious. They don't want to make the mistake of cutting rates too early and then having to reverse course if inflation starts to rise again. This could cause damage to their credibility.

I'd also wager that the markets are too pessimistic in their predictions. While a recession is certainly possible, I don't think it's as likely as the markets seem to be pricing in.

The Bottom Line

So, are interest rate cuts coming soon? Yes, most likely. The Federal Reserve is expected to cut interest rates sometime in 2025. However, the timing and the amount of the cuts is still uncertain because of factors such as inflation, economic growth, and tariff policies. Keep an eye on the economic data and listen to what the Fed is saying. I am confident that we will get more hints in the coming months.

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Goldman Sachs Forecasts 3 Interest Rate Cuts From Fed in 2025

April 18, 2025 by Marco Santarelli

Goldman Sachs Forecasts 3 Interest Rate Cuts From Fed in 2025

Ever wonder what the smart money on Wall Street is thinking about the future of our economy? Well, here's a headline that's got my attention: Goldman Sachs forecasts three rate cuts from the Federal Reserve in 2025. That's right, one of the biggest names in finance is predicting that the folks in charge of keeping our economy on track will be lowering interest rates not once, not twice, but three times next year.

This move, if it happens, would mean a total reduction of 0.75 percentage points in the federal funds rate. Now, this isn't just a random guess; it's a prediction rooted in some pretty significant economic factors, particularly the expected fallout from President Trump's recently implemented tariffs. While the Fed itself is currently projecting only two rate cuts, this difference in opinion signals a potentially bumpy road ahead and some crucial decisions for our financial future. Let's dig deeper into what this all means for you, me, and the wider economy.

Goldman Sachs Forecasts Three Interest Rate Cuts From Fed in 2025

Understanding the Basics: Why Rate Cuts Matter

Before we get into the specifics of Goldman's forecast and its implications, let's quickly recap why these interest rate adjustments by the Federal Reserve are such a big deal. Think of the Fed's main job as keeping the economy humming along smoothly. They have a couple of key tools to do this, and one of the most powerful is the ability to influence borrowing costs through the federal funds rate.

  • What is the federal funds rate? It's the target rate that banks charge each other for the overnight lending of reserves.
  • How do rate cuts help? When the Fed cuts this rate, it becomes cheaper for banks to borrow money. These lower costs tend to trickle down to us in the form of lower interest rates on things like car loans, mortgages, and business loans. This can encourage people to spend more, and businesses to invest and hire, which can help to boost a slowing economy.
  • Why would the Fed cut rates? Typically, the Fed cuts rates when they are worried about the economy slowing down too much or when inflation (the rate at which prices for goods and services increase) is too low.

So, when a major player like Goldman Sachs predicts multiple rate cuts, it suggests they see potential headwinds for the economy in the coming year.

The Current Economic Picture: A Bit of a Mixed Bag

As we sit here in the early part of 2025, the economic landscape feels a little like a seesaw. On one hand, we've seen some encouraging signs.

  • Solid Growth: The economy actually grew at a decent pace in the last part of 2024, with a 2.4% increase in GDP. That's not bad at all and suggests the economy had some momentum heading into this year.
  • Relatively Controlled Inflation: While inflation at 2.8% is still a bit above the Federal Reserve's ideal target of 2%, it has come down from earlier highs. Core inflation, which takes out some of the more volatile food and energy prices, is around 3.1%. This suggests that while prices are still rising, the pace has slowed somewhat.
  • Low Unemployment: The job market has remained pretty strong, with unemployment rates staying relatively low.

However, there are definitely clouds on the horizon, and these are likely what's fueling Goldman Sachs' more dovish outlook.

  • Trump's Tariffs: A Potential Game Changer: The big wild card right now is the set of tariffs that President Trump has recently put in place. These include significant tariffs on goods coming from some of our biggest trading partners, like 25% on imports from Canada and Mexico and 10% on goods from China. There's also talk of reciprocal tariffs down the line.
  • Weakening Consumer Confidence: I've noticed that people seem a bit more uneasy about the future. The University of Michigan's survey of consumer sentiment, for example, showed a noticeable drop recently, with folks expressing concerns about rising prices. This makes sense, as tariffs often translate to higher costs for consumers.

The Tariff Trouble: Why Goldman Sachs is More Concerned

In my opinion, the tariffs are the key reason why Goldman Sachs is anticipating more aggressive action from the Fed compared to the Fed's own projections. Here's how I see these tariffs potentially shaking things up:

  • Higher Prices for Everyday Goods: Think about it – when a hefty tax (that's essentially what a tariff is) is slapped on imported goods, those costs are often passed on to us, the consumers. This means we could see higher prices for everything from cars and electronics to building materials and even groceries if imported ingredients become more expensive. Goldman Sachs is likely factoring in a significant increase in consumer prices due to these tariffs. For example, the potential 10-20 cent increase per gallon of gas due to tariffs on Canadian crude oil is something that would hit everyone's wallet.
  • Slower Economic Growth: Tariffs can also hurt businesses. They might face higher costs for imported components, making their products more expensive. This can lead to reduced sales, lower profits, and potentially even job losses. Furthermore, other countries might retaliate with their own tariffs on American goods, making it harder for U.S. companies to sell their products overseas. Goldman Sachs likely believes that these tariffs will significantly dampen economic growth in 2025, potentially even increasing the probability of a recession to 35%.
  • Increased Uncertainty: Businesses and consumers don't like uncertainty. When the rules of trade are in flux due to tariffs, it can make it harder for businesses to plan for the future and for individuals to make big purchasing decisions. This can lead to a general slowdown in economic activity.

The Fed's Perspective: A More Cautious Approach

Now, let's look at why the Federal Reserve seems to be taking a more measured approach, currently projecting only two rate cuts in 2025. From what I can gather, they are likely balancing a few key factors:

  • Still-Elevated Inflation: Even though inflation has come down, it's still above their 2% target. The Fed is very careful about letting inflation become entrenched, as it can be difficult to bring back down. They might want to see more concrete evidence that inflation is firmly under control before they start cutting rates aggressively.
  • Current Economic Strength: Despite the concerns about tariffs, the economy has shown some resilience. The Fed might be waiting to see the actual impact of the tariffs on economic data before making significant moves. They might be thinking, “Let's wait and see how bad it really gets before we hit the panic button.”
  • Avoiding Premature Action: The Fed knows that once they start cutting rates, it can be harder to reverse course if inflation suddenly picks up again. They might prefer to be more cautious and see how things play out before making significant policy changes. As Fed Chair Jerome Powell himself said, “It's really hard to know how this is going to work out,” highlighting the uncertainty surrounding the tariff impacts.

According to their March 2025 projections (the “dot plot”), the Fed expects the fed funds rate to come down by 0.50 percentage points in 2025, implying two 0.25 percentage point cuts. They also anticipate that real GDP growth will slow to 1.7% for the year.

The Discrepancy: Who's Right and What Does it Mean?

The difference between Goldman Sachs' prediction of three rate cuts and the Fed's projection of two highlights the significant uncertainty surrounding the economic outlook for 2025. So, who is more likely to be right?

In my opinion, both sides have valid points. Goldman Sachs is likely placing a greater weight on the potential negative impacts of the tariffs on growth and inflation. They might see a scenario where the tariffs lead to a more significant economic slowdown, forcing the Fed to act more aggressively to stimulate the economy. Their forecast of rate cuts in July, September, and November suggests they anticipate a more immediate and pronounced negative impact from the tariffs. They've even downgraded their GDP growth forecast to 1.5% from 2.0% due to these concerns.

The Fed, on the other hand, seems to be taking a more data-dependent approach. They might want to see concrete evidence of a significant economic slowdown or a more pronounced drop in inflation before they deviate from their current plan of two rate cuts. They are likely trying to balance the risks of slowing growth against the risk of allowing inflation to remain too high.

The fact that there's such a notable difference in opinion from a major financial institution like Goldman Sachs underscores the volatility and risks that investors need to be aware of. It suggests that the economic path forward is far from certain.

What This Means for You and Your Money

So, how does all of this potential back-and-forth on interest rates affect your everyday life and your investments? Here are a few things to keep in mind:

  • Borrowing Costs: If the Fed does end up cutting rates more aggressively (closer to Goldman's forecast), you could see lower interest rates on things like mortgages, car loans, and personal loans. This could make it cheaper to borrow money for big purchases. However, it's important to remember that other factors besides the federal funds rate also influence these rates.
  • Savings and Investments: Lower interest rates generally mean lower returns on savings accounts and some fixed-income investments like bonds. On the other hand, lower rates can sometimes boost the stock market as they make borrowing cheaper for businesses and can make bonds less attractive relative to stocks. However, the uncertainty surrounding the reasons for the rate cuts (like a potential economic slowdown due to tariffs) can also create volatility in the stock market. We've already seen some market jitters in response to tariff-related news.
  • Inflation and Purchasing Power: As mentioned earlier, tariffs can lead to higher prices, which erodes your purchasing power. Even if the Fed cuts rates, if prices are rising faster than your wages, you'll still feel the pinch. It's a tricky balancing act.
  • Job Market: A significant economic slowdown, potentially exacerbated by tariffs, could lead to a weaker job market. If Goldman Sachs' more pessimistic outlook proves correct, we could see higher unemployment rates down the line.

Navigating the Uncertainty: My Thoughts and Advice

As someone who keeps a close eye on these economic developments, I think the next year or so is going to be interesting, to say the least. The interplay between the tariffs, inflation, and the Federal Reserve's response is going to be crucial.

My personal take is that Goldman Sachs' concerns about the tariffs are valid. Historically, tariffs have often led to higher prices and disruptions in trade, and there's no reason to believe this time will be significantly different. While the Fed's cautious approach is understandable given the current inflation levels, they might find themselves having to react more forcefully if the economic fallout from the tariffs is more severe than they currently anticipate.

Here's my advice for navigating this uncertain environment:

  • Stay Informed: Keep an eye on economic news and data, particularly reports on inflation, GDP growth, and consumer sentiment. Pay attention to what the Fed and major financial institutions like Goldman Sachs are saying.
  • Review Your Finances: Take a look at your personal financial situation. Are you heavily reliant on borrowing? If so, consider how potential interest rate changes might affect you. Are you concerned about rising prices? Think about ways to budget and potentially reduce your expenses.
  • Diversify Your Investments: If you have investments, make sure your portfolio is well-diversified across different asset classes. This can help to cushion the impact of market volatility.
  • Don't Panic: It's easy to get caught up in the day-to-day market swings, but try to maintain a long-term perspective. Economic cycles are normal, and there will always be periods of uncertainty.

Ultimately, the future is uncertain, and economic forecasts are just that – forecasts. However, the differing views of the Federal Reserve and a major player like Goldman Sachs serve as a reminder that there are significant risks and uncertainties in the current economic environment. Keeping a close eye on developments and being prepared for different scenarios is always a wise approach.

What It Means for Investors?

Three interest rate cuts in 2025—a major shift that could impact real estate and investment opportunities.

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Stagflation Alert: Economist Survey Predicts Weak Q1 GDP Due to Tariffs

March 31, 2025 by Marco Santarelli

Stagflation Alert: Economist Survey Predicts Weak Q1 GDP Due to Tariffs

Ever get that uneasy feeling, like something just isn't quite right with the way things are going? That's the vibe I'm getting when I look at the latest economic forecasts. A recent CNBC survey of 14 economists points to a significant slowdown in growth, with the economic growth in the first quarter of this year projected to be a meager 0.3%. This sluggish pace, the weakest since the pandemic recovery, is largely attributed to the chilling effect of new tariffs, which appear to be creating conditions ripe for stagflation – a nasty combination of slow growth and persistent inflation.

Economist Survey Predicts Weak Q1 GDP Due to Tariffs

It feels like just yesterday the economy was showing some decent momentum, but these new numbers paint a starkly different picture. Seeing growth plummet from the previous quarter's 2.3% to a near standstill is definitely cause for concern. And the fact that core inflation, as measured by the Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred gauge, is expected to remain stubbornly high around 2.9% for most of the year only adds fuel to this worrying outlook.

Why the Sudden Slowdown? The Tariff Tango

From where I'm sitting, the main culprit seems pretty clear: the uncertainty and the actual implementation of new, sweeping tariffs from the current administration. It's like throwing sand in the gears of the economic machine. Businesses become hesitant to invest, and consumers, facing potentially higher prices, tighten their purse strings.

We're already seeing signs of this in the real economic data. The Commerce Department recently reported that inflation-adjusted consumer spending in February barely budged, rising by a paltry 0.1%, following a 0.6% decline in January. This is a significant drop from the robust spending growth we saw in the last quarter of the previous year. As Barclays economists noted, the earlier decline in sentiment is now translating into a tangible slowdown in economic activity.

Another factor playing a role is a noticeable surge in imports. Now, on the surface, more goods coming into the country might seem like a good thing. However, in the context of impending tariffs, it appears businesses are rushing to bring in goods before the higher taxes kick in. While this might offer some short-term relief in terms of supply, these imports actually subtract from the GDP calculation. It's a bit of a temporary distortion, but it contributes to the weak first-quarter growth number.

Stagflation's Shadow: A Looming Threat

The prospect of stagflation is particularly troubling. Think about it: slow economic growth means fewer job opportunities and potentially stagnant wages. At the same time, persistent inflation erodes the purchasing power of the money we do have. It's a squeeze on both ends, and it can be incredibly difficult to break free from.

The CNBC survey highlights that core PCE inflation isn't expected to fall convincingly until the very end of the year. This stubbornness will likely tie the Federal Reserve's hands. While the market might be hoping for interest rate cuts to stimulate the slowing economy, the Fed will be hesitant to lower rates while inflation remains well above their target. It's a tricky situation, a real balancing act with potentially significant consequences.

Not All Doom and Gloom? A Glimmer of Hope

It's important to note that not all economists are predicting a complete downturn. The survey indicates that only a couple of the 12 economists who provided specific growth numbers for the first quarter foresee negative growth. And importantly, none are forecasting consecutive quarters of contraction, which is often a key indicator of a recession.

Oxford Economics, for instance, while having one of the lowest Q1 growth estimates (-1.6%), anticipates a rebound in the second quarter, projecting GDP growth to bounce back to 1.9%. Their reasoning is that the surge in imports during the first quarter will eventually translate into positive contributions to growth as these goods are either added to inventories or sold to consumers. It's a bit of a delayed effect.

Recession Risks on the Rise

Despite the hopes for a rebound, the margin for error looks slim. An economy growing at a snail's pace of 0.3% is incredibly vulnerable to any further shocks. And with the new tariffs expected to be implemented this week, the risks of slipping into negative territory have definitely increased.

As Mark Zandi of Moody's Analytics aptly put it, even though their baseline forecast doesn't show a decline in GDP, the mounting global trade war and potential cuts to jobs and funding create a “good chance GDP will decline in the first and even the second quarters of this year.” He further warns that a recession becomes likely if the president doesn't reconsider the tariffs by the third quarter. That's a pretty stark warning from a respected economist.

Moody's Analytics themselves are projecting a slightly better first quarter growth of 0.4%, with a rebound to 1.6% by the end of the year. However, even this more optimistic scenario still represents growth that is modestly below the long-term trend.

My Take: Navigating Choppy Waters

Personally, I find these forecasts deeply concerning. While I understand the arguments sometimes made in favor of tariffs – like protecting domestic industries – the potential for widespread economic disruption and the creation of stagflationary conditions seem to outweigh any perceived benefits in this current climate.

The interconnected nature of the global economy means that tariffs rarely have a unilateral effect. They often lead to retaliatory measures from other countries, resulting in a trade war that hurts businesses and consumers on all sides. The uncertainty created by these policies also discourages investment, which is crucial for long-term economic growth and job creation.

The fact that inflation is proving to be so sticky further complicates matters. The Federal Reserve's usual toolkit for dealing with slow growth – lowering interest rates – becomes less effective when inflation is still a significant problem. They risk further fueling price increases if they ease monetary policy prematurely.

Looking Ahead: A Need for Course Correction?

The coming months will be critical. We'll need to closely monitor economic data, particularly consumer spending, business investment, and inflation figures, to see if the anticipated rebound materializes or if the risks of a more significant downturn become reality.

It seems to me that a reassessment of the current trade policies might be necessary to avoid potentially serious economic consequences. Finding ways to foster international trade and cooperation, rather than erecting barriers, could be a more sustainable path to healthy economic growth.

In the meantime, businesses and individuals will need to navigate this period of uncertainty with caution. For businesses, this might mean carefully managing costs and delaying major investment decisions. For individuals, it could mean being mindful of spending and saving where possible.

The economic forecast for the first quarter serves as a stark reminder that policy decisions have real-world impacts. I sincerely hope that policymakers take these warnings seriously and consider adjustments to avoid the specter of stagflation becoming a reality.

Work With Norada – Build Wealth

With economists warning of stagflation and weak Q1 GDP due to tariffs, now is the time to invest in stable, income-generating real estate for financial security.

Norada’s turnkey rental properties provide consistent cash flow and long-term wealth, no matter the economic climate.

Speak with our expert investment counselors (No Obligation):

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Filed Under: Economy, Stock Market Tagged With: Economic Forecast, Economy, Federal Reserve, GDP, inflation, Stagflation, Tariffs

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