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April 2025 Jobs Report: Economy Adds 177K Jobs Amid Trade War Fears

May 3, 2025 by Marco Santarelli

April 2025 Jobs Report: Economy Adds 177K Jobs Amid Trade War Fears

The April 2025 Jobs Report reveals that the U.S. economy added a respectable 177,000 jobs, and the unemployment rate remained steady at 4.2%. This good news comes amidst concerns about the potential impact of tariffs on the economy, leaving the Federal Reserve in a wait-and-see mode regarding future interest rate adjustments.

It's always exciting to dive into the jobs report each month. It gives us a snapshot of where the economy is at, and it's something I follow closely. This month's report, though, is a bit more nuanced than usual because we have to consider the impact of tariffs alongside the raw job numbers.

April 2025 Jobs Report: A Solid Pace Amidst Tariff Uncertainty

Why the April Jobs Report Matters

The jobs report is more than just a number; it's a health check for the U.S. economy. It tells us how many people are working, where jobs are being created, and if wages are going up. This information helps everyone from the Federal Reserve to small business owners make informed decisions. It's kind of like reading the weather forecast – you might not like what it says, but it helps you prepare for what's coming.

Here's why this particular report is grabbing headlines:

  • Healthy Job Growth: Adding 177,000 jobs is a solid number, showing that businesses are still hiring and the economy is moving forward.
  • Tariff Concerns: President Trump's tariffs are looming, and there's worry they could slow down the economy or raise prices for consumers. The report provides early hints, but the full impact is yet to be seen.
  • Fed's Next Move: The Federal Reserve is watching the data closely to decide whether to cut interest rates. This report influences their decision, potentially impacting borrowing costs for businesses and individuals.

Breaking Down the Numbers: Key Takeaways from the April 2025 Jobs Report

Here's a closer look at what the report revealed:

  • Total Nonfarm Payrolls: Rose by 177,000 in April.
  • Unemployment Rate: Remained unchanged at 4.2%.
  • Average Hourly Earnings: Increased by 6 cents, or 0.2%, to $36.06.

Digging Deeper: What the Numbers Really Mean

Okay, so we know the numbers, but what do they mean?

  • Job Creation: The 177,000 jobs added is a good sign, although it's a slight dip from the revised March figure of 185,000. It signals that the economy is still creating jobs, but the pace might be slowing down a bit.
  • Unemployment: A steady unemployment rate of 4.2% is considered low and indicates a tight labor market. This means it's harder for businesses to find workers, which can potentially push wages higher.
  • Wages: The modest increase in average hourly earnings suggests that wage growth is still relatively tame. While workers always want to see their paychecks increase, slow and steady wage growth can help keep inflation in check.

Sector Spotlight: Where the Jobs Are (and Aren't)

Not all sectors are created equal when it comes to job growth. Here's where the April report showed gains and losses:

  • Healthcare: Continues to be a strong performer, adding 51,000 jobs in April. This reflects the ongoing demand for healthcare services as the population ages.
  • Transportation and Warehousing: Showed positive hiring numbers, likely driven by the continued growth of e-commerce and the need to move goods around the country.
  • Financial Activities: Positive hiring numbers.
  • Social Assistance: Positive hiring numbers.
  • Federal Government: Experienced a decline of 9,000 jobs in April, and has shed 26,000 jobs since January, continuing a trend of government cutbacks.

The Tariff Factor: A Cloud Over the Economic Horizon

The big question mark hanging over this jobs report is the potential impact of President Trump's tariffs. Here's what we know:

  • Tariffs on Hold (for Now): While tariffs were announced earlier in the year, some are paused until July. This gives businesses and the Fed some breathing room to assess the situation.
  • Escalating Tensions: Tensions between the U.S. and China have increased, with tariffs on U.S.-bound goods from China rising to 145%. This could potentially raise costs for businesses and consumers.
  • Waiting for Data: It's likely too soon to see the full impact of the tariffs in the April jobs report. The Fed is closely watching the data for clues about whether the tariffs will lead to higher inflation or slower economic growth.

The Fed's Dilemma: Rates on Hold, But For How Long?

The jobs report plays a crucial role in the Federal Reserve's decision-making process when it comes to interest rates. Here's the situation:

  • Rates on Hold: The solid job growth in April makes it likely that the Fed will keep interest rates steady at its upcoming May and June meetings.
  • July Cut Possible?: However, the bond market is starting to price in a higher probability of a rate cut in July. As of this report, bond futures traders are pricing in a chance of over 56% for a Fed rate cut in July.
  • Data Dependent: The Fed will likely wait until July to make any moves, as they need more data to gauge the inflationary consequences of the tariffs.

Why the Fed is Playing the Waiting Game

The Federal Reserve wants to avoid making any knee-jerk reactions. Cutting interest rates too soon could fuel inflation, while waiting too long could stifle economic growth. They're trying to find that sweet spot, and that requires carefully analyzing all the available data.

My Take on the April 2025 Jobs Report

Overall, I think the April 2025 Jobs Report paints a picture of an economy that's still performing well, but facing some potential headwinds. The solid job growth is encouraging, but the uncertainty surrounding tariffs is a real concern.

  • Good News: The U.S. economy is still chugging along, creating jobs and keeping unemployment low. This is a testament to the resilience of American businesses and workers.
  • Cause for Caution: The tariffs are a wild card. If they escalate, they could definitely put a damper on economic growth and raise prices for consumers.
  • Watching the Fed: The Federal Reserve has a tough job ahead of them. They need to carefully balance the risks of inflation and slower growth, and they'll be relying heavily on the data in the coming months.

What to Watch For in the Coming Months

Here are a few things I'll be keeping an eye on:

  • Tariff Impact: I'll be looking for signs that the tariffs are starting to affect consumer spending, business investment, and inflation.
  • Wage Growth: Will wages start to accelerate as the labor market remains tight? This could put upward pressure on inflation.
  • Global Economy: The U.S. economy doesn't operate in a vacuum. I'll be watching the global economy for signs of strength or weakness, as this can impact U.S. growth.
  • Federal Reserve Decisions: If the Fed decides to cut rates, it will be interesting to see how the market reacts.

Final Thoughts

The April 2025 Jobs Report provides a valuable snapshot of the U.S. economy at a crucial moment. While the headline numbers are positive, it's important to look beyond the surface and consider the potential impact of tariffs. The coming months will be critical as we see how these factors play out and how the Federal Reserve responds.

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):

(800) 611-3060

Get Started Now

Read More:

  • Bond Market Today and Outlook for 2025 by Morgan Stanley
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Filed Under: Economy, Stock Market Tagged With: Economic Forecast, Economy, inflation, Jobs Report, Tariffs, Unemployment Rate

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.

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):

(800) 611-3060

Get Started Now

Read More:

  • The Risk of New Tariffs: Will They Crash the Stock Market and Economy?
  • Stagflation Alert: Economist Survey Predicts Weak Q1 GDP Due to Tariffs
  • Goldman Sachs Significantly Raises Recession Probability by 35%
  • 2008 Crash Forecaster Warns of DOGE Triggering Economic Downturn
  • Stock Market Predictions 2025: Will the Bull Run Continue?
  • Stock Market Crash: Nasdaq 100 Tanks 3.5% Amid AI Concerns
  • Stock Market Crash Prediction With Huge Discounts on Bitcoin, Gold, Houses
  • S&P 500 Forecast for the Next Year: What to Expect in 2025?
  • Stock Market Predictions for the Next 5 Years
  • Echoes of 1987: Is Today’s Stock Market Crash Leading to a Recession?
  • Is the Bull Market Over? What History Says About the Stock Market Crash
  • Wall Street Bear Predicts a Historic Stock Market Crash Like 1929
  • Economist Predicts Stock Market Crash Worse Than 2008 Crisis
  • Next Stock Market Crash Prediction: Is a Crash Coming Soon?
  • Stock Market Crash: 30% Correction Predicted by Top Forecaster

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

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.

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):

(800) 611-3060

Get Started Now

Read More:

  • Stagflation Alert: Economist Survey Predicts Weak Q1 GDP Due to Tariffs
  • Goldman Sachs Significantly Raises Recession Probability by 35%
  • 2008 Crash Forecaster Warns of DOGE Triggering Economic Downturn
  • Stock Market Predictions 2025: Will the Bull Run Continue?
  • Stock Market Crash: Nasdaq 100 Tanks 3.5% Amid AI Concerns
  • Stock Market Crash Prediction With Huge Discounts on Bitcoin, Gold, Houses
  • S&P 500 Forecast for the Next Year: What to Expect in 2025?
  • Stock Market Predictions for the Next 5 Years
  • Echoes of 1987: Is Today’s Stock Market Crash Leading to a Recession?
  • Is the Bull Market Over? What History Says About the Stock Market Crash
  • Wall Street Bear Predicts a Historic Stock Market Crash Like 1929
  • Economist Predicts Stock Market Crash Worse Than 2008 Crisis
  • Next Stock Market Crash Prediction: Is a Crash Coming Soon?
  • Stock Market Crash: 30% Correction Predicted by Top Forecaster

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

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?

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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.

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Goldman Sachs Significantly Raises Recession Probability by 35%

March 31, 2025 by Marco Santarelli

Goldman Sachs Significantly Raises Recession Probability by 35%

It seems like the economic ride might be getting a little bumpy. Just recently, investment giant Goldman Sachs raised its 12-month US recession probability quite significantly, jumping from a previous estimate of 20% all the way up to 35%. This isn't exactly comforting news, and it's got a lot of us wondering what's going on and what it might mean for our wallets. The big finger seems to be pointing at President Donald Trump's tariff policies, announced around March 31, 2025, as the main culprit behind this increased worry.

Now, I'm no Wall Street guru, but I've been keeping a close eye on the economy, just like many of you. When a big player like Goldman Sachs starts talking about a higher chance of recession, it's usually worth paying attention. Their analysts have access to a ton of data and expertise, so their revised outlook suggests some real concerns are brewing beneath the surface of our economy.

Goldman Sachs Significantly Raises Recession Probability by 35%

Why the Sudden Jump in Recession Fears?

So, what exactly made Goldman Sachs change their tune so drastically? From what I gather, the main worry stems from the potential fallout of these new tariffs. Think about it like this: when the government puts taxes on goods coming into the country, it can lead to a chain reaction that nobody really wants.

Here are some of the key concerns that likely fueled Goldman Sachs's increased recession probability:

  • Inflation Might Get Worse: Tariffs basically make imported goods more expensive. Businesses that rely on these imports might have to raise their prices to cover the extra cost, and guess who ends up paying more? That's right, us consumers. Higher prices for everyday things can really squeeze household budgets and lead to less spending overall.
  • Other Countries Might Hit Back: International trade is a two-way street. If we slap tariffs on goods from other countries, they might decide to do the same to our exports. This kind of tit-for-tat can hurt American businesses that sell their products overseas, leading to lower profits and potentially even job losses. This is what economists call trade retaliation, and it's a serious worry.
  • Slower Economic Growth Looks More Likely: When businesses face higher costs and the risk of retaliatory tariffs, they might become hesitant to invest in new projects or hire more workers. Consumers, facing higher prices, might also tighten their belts and spend less. This slowdown in both business and consumer activity is a recipe for weaker economic growth, and if it gets bad enough, it can tip us into a recession.

Looking at the Numbers: What the Data Tells Us

It's not just Goldman Sachs ringing alarm bells, either. Some of the recent economic data also paints a somewhat concerning picture. For instance, the Conference Board's Leading Economic Index (LEI), which is designed to predict future economic activity, actually declined slightly in February 2025. This suggests that there might be some headwinds facing the economy in the months ahead.

Now, it's important to remember that economic forecasts aren't set in stone. They're based on the best information available at the time, but things can change quickly. For example, Deloitte Insights put out a forecast for 2025 that had a baseline expectation of 2.6% real GDP growth. That sounds pretty decent, right? However, they also looked at a scenario where these trade tensions really escalate into what they called “trade wars,” and in that case, they predicted growth could drop to just 2.2%. That small difference might not sound like much, but it can have a significant impact on the overall health of the economy.

Think of it like driving a car. If the road ahead is clear, you can cruise along at a good speed. But if you see storm clouds gathering and the road starts to get a little slippery, you're probably going to ease off the gas pedal. That's kind of what these economic indicators are suggesting – the road ahead might be getting a bit more challenging.

My Take on the Situation: More Than Just Numbers

As someone who tries to understand how these big economic shifts affect everyday life, this news from Goldman Sachs makes me a little uneasy. It feels like we're entering a period of greater uncertainty, and that can have a real impact on how people feel about their jobs, their savings, and their future.

I've always believed that international trade, when done fairly, can be a good thing for everyone. It allows businesses to access a wider range of goods and services, and it can create opportunities for growth and innovation. When we start throwing up barriers in the form of tariffs, it disrupts these established relationships and creates new costs and risks.

It's also worth remembering that these policies don't exist in a vacuum. Other countries are going to react, and those reactions can have unintended consequences for us here at home. We've seen this play out in the past, and it's rarely a smooth or painless process.

Will the Federal Reserve Come to the Rescue?

One interesting aspect of Goldman Sachs's report is their expectation that the Federal Reserve (also known as the Fed) will likely step in to try and cushion the blow. They're now predicting that the Fed will cut interest rates three times in 2025, which is more aggressive than their previous forecast of two cuts.

Why would the Fed do this? Lowering interest rates can make it cheaper for businesses to borrow money and invest, and it can also make it cheaper for consumers to take out loans for things like cars or houses. This can help to stimulate economic activity and potentially offset some of the negative effects of the tariffs.

However, the Fed is in a tough spot. They're also trying to keep inflation under control. If they cut rates too aggressively, it could actually make inflation worse. It's a delicate balancing act, and there's no guarantee that rate cuts alone will be enough to prevent a recession if the trade situation deteriorates significantly.

What This Means for You and Me

So, what does all this mean for the average person? While a 35% chance of recession doesn't mean it's a certainty, it does mean that the risks have definitely increased. Here are a few things that might happen if the economy starts to slow down:

  • Job Market Could Weaken: Businesses might become more cautious about hiring, and in a recession, some companies might even have to lay off workers. This can lead to higher unemployment rates, which is tough for everyone.
  • Investments Could Take a Hit: The stock market often doesn't do well during periods of economic uncertainty or recession. If you have investments in stocks or mutual funds, you might see their value decline. Goldman Sachs themselves have even lowered their year-end target for the S&P 500 stock index, suggesting they expect more volatility and potentially lower returns.
  • Consumer Spending Might Decrease: If people are worried about their jobs or the economy in general, they tend to cut back on spending. This can create a negative feedback loop, where less spending leads to lower business revenues, which can then lead to more job cuts.

Navigating the Uncertainty Ahead

Look, nobody has a crystal ball, and it's impossible to say for sure what the future holds. But when smart people who analyze the economy for a living start raising red flags, it's a good time to pay attention and maybe think about how you can prepare.

For me, this kind of news reinforces the importance of having a solid financial foundation. That means things like:

  • Having an Emergency Fund: It's always a good idea to have some money set aside to cover unexpected expenses or a potential job loss. Aiming for three to six months' worth of living expenses is a common guideline.
  • Managing Debt Carefully: High levels of debt can become a real burden if your income is affected by an economic downturn. Now might be a good time to review your debts and see if there are ways to pay them down.
  • Thinking Long-Term About Investments: While market downturns can be scary, it's important to remember that investing is usually a long-term game. Trying to time the market is often difficult, and it's generally better to stay focused on your long-term goals.

Final Thoughts:

The fact that Goldman Sachs has raised its 12-month US recession probability to 35% is definitely something to take note of. While it's not a guarantee of a downturn, it signals that the risks have increased, largely due to the uncertainty surrounding President Trump's tariff policies. As an individual, the best thing I can do is stay informed, be mindful of my financial situation, and prepare for potential challenges. The economy is always evolving, and being ready for different scenarios is always a smart move.

Work With Norada – Secure Your Investments in 2025

With Goldman Sachs raising recession probability by 35%, now is the time to shift towards stable, cash-flowing real estate investments that provide financial security.

Norada’s turnkey rental properties offer passive income and resilience, even during economic downturns.

Speak with our expert investment counselors (No Obligation):

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Tariffs Impact Housing Market: Builders Sound Alarm on Rising Costs

March 6, 2025 by Marco Santarelli

Tariffs Impact Housing Market: Builders Sound Alarm on Rising Costs

Have you ever gone to the grocery store and noticed that your favorite snacks suddenly cost a lot more? Or maybe you're thinking about buying a new TV, but the prices seem to have jumped up? These price increases, what we call inflation, can really hit our wallets hard. And lately, there's been a lot of talk about something called tariffs – taxes on goods coming into our country from other places.

Tariffs Impact Housing Market: Homebuilders Sound Alarm on Rising Costs

Dreaming of a new home? Maybe you’re picturing fresh paint, that new house smell, and finally having that extra space you’ve always wanted. But that dream might just be getting a little pricier, and here’s why: homebuilders are sounding the alarm because the cost of building materials is going up thanks to the new tariffs slapped on goods from Canada and Mexico by the Trump administration. These tariffs, intended to pressure our neighbors to tighten up border security, are having an unintended side effect right here at home – potentially making new houses more expensive for everyday folks like you and me.

Tariffs on Trade Partners Hit Home

So, what exactly happened? Well, President Trump put in place a hefty 25% tariff on goods coming in from both Canada and Mexico. This isn't just a minor tweak; it’s a significant tax on a wide range of products that cross our borders. The idea, as the White House explains it, is to push Canada and Mexico to do more to control the flow of illegal drugs and unauthorized immigration into the United States. Alongside these tariffs, there's also an additional 10% tariff on goods from China, adding another layer to this trade tension.

But here’s the rub – these tariffs hit industries that rely heavily on imports, and homebuilding is right at the top of that list. Buddy Hughes, the Chairman of the National Association of Homebuilders, put it plainly when he spoke to Realtor.com®. He warned that “this move to raise tariffs by 25% on Canadian and Mexican goods will harm housing affordability.” It's not just a vague worry; it's a direct hit to the wallet for anyone looking to buy a new home.

Think about it – when the price of lumber and other essential building materials goes up, who do you think ultimately pays? It's going to be the folks buying the houses. As Hughes pointed out, “tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices.” He's urging the Trump administration to reconsider these tariffs, emphasizing the need to keep housing affordable and to work together to boost home production.

Where Do Building Materials Come From Anyway?

You might be wondering, why are Canada and Mexico so important when it comes to building houses in the U.S.? Well, turns out, we depend on them quite a bit. Industry figures show that about 70% of the dimensional lumber used to build our homes comes from Canada. Think about the wood framing, the floors, the roofs – a lot of that starts in Canadian forests. Similarly, Mexico is a major source for drywall gypsum, that material that makes up the walls inside our houses. While China also supplies some fixtures and finishes, Canada and Mexico are the real heavy hitters when it comes to the raw materials of home construction.

This reliance on imports means that when tariffs are imposed on these countries, it’s not just a distant trade dispute – it directly impacts the cost of building a home right here in America. It’s like putting a tax directly on the materials that go into the walls and roofs over our heads.

The Ripple Effect on Home Prices

Danielle Hale, the Chief Economist at Realtor.com, paints a pretty clear picture of what this means for the housing market. According to her, builders are facing a tough choice: “Rising costs due to tariffs on imports will leave builders with few options. They can choose to pass higher costs along to consumers, which will mean higher home prices, or try to use less of these materials, which will mean smaller homes.”

Neither option is great for homebuyers. If builders pass the costs on, suddenly that dream home becomes even more out of reach for many families. Especially at a time when housing affordability is already a major concern in many parts of the country. Or, if builders try to cut costs by using less material, we could end up seeing smaller houses, maybe with fewer features, just to keep prices somewhat manageable. It’s a squeeze either way.

Hale also points out that the impact could go beyond just new homes. For a while now, the price difference between new construction and existing homes had been getting smaller in some areas. But these tariffs could reverse that trend. “The premium on new construction homes that had been shrinking in many markets according to Realtor.com data could begin to rise again, or we may see buyer's willingness to pay rise for existing homes as newly built homes get pricier—which would mean rising prices for existing homes, too,” she explains.

So, it’s not just about the price of new homes potentially going up. If new homes become more expensive, it could push up demand and prices for existing homes as well. It’s a ripple effect that could impact the entire housing market.

And it's not just buying a home that could be affected. Hale also notes that those home renovation projects we’ve been dreaming about might also get more expensive. “We may also see a lower appetite for major remodeling projects that would rely on these tariff-affected inputs, hamstringing the ability of consumers to remake their homes to fit their current needs,” she says. Want to finally redo that kitchen or bathroom? The tariffs on imported materials could make those projects cost more and potentially put them on hold for many homeowners.

Trump's Solution: More Logging

President Trump has acknowledged that we rely too much on foreign lumber. His solution? He wants to boost domestic timber production. He even signed executive orders aimed at ramping up logging in national forests. The idea is that by cutting down more trees here in the U.S., we can reduce our reliance on Canadian lumber and hopefully bring down building costs.

Now, environmental groups aren’t too thrilled about this idea, and it's understandable why. Expanding logging in national forests raises concerns about habitat loss, deforestation, and the impact on ecosystems. However, the Trump administration argues that more domestic logging is the answer to bring down building costs and lessen our dependence on Canadian lumber. It’s a complex issue with different sides and valid points.

“A Drug War, Not a Trade War”?

Adding another layer to this whole situation, a senior White House official told Realtor.com that these tariffs aren't really about trade in the long run. They are, according to this official, “a national security measure narrowly targeted at halting the international drug trade and illegal immigration, and are not intended as a long-term economic policy.” The official even suggested that the tariffs on Canada and Mexico might not last long enough to really mess with the housing supply chain, since building a house takes months anyway.

Commerce Secretary Howard Lutnick echoed this sentiment, telling CNBC on Tuesday morning, “This is not a trade war, this is a drug war.” He mentioned an April 2nd deadline for a report on trade deals, suggesting there will be discussions on how to “reset trade correctly.”

However, words are one thing, and actions are another. Canada and Mexico didn’t take these tariffs lying down. They swiftly retaliated by slapping their own tariffs on U.S. goods. This tit-for-tat tariff battle raises the specter of a full-blown trade war, which nobody really wants. Canadian Prime Minister Justin Trudeau didn't mince words, calling the tariffs “a very dumb thing to do” directly addressing President Trump. Ontario Premier Doug Ford even threatened to cut off electricity to several U.S. states, showing just how tense things are getting.

Market Jitters and Uncertainty

The financial markets aren’t exactly cheering about all this trade drama either. The S\&P 500, a key measure of stock market performance, dropped about 3.7% in the week as it became clear Trump was going ahead with these tariffs. Paul Ashworth, Chief North America Economist for Capital Economics, noted that “Markets have predictably reacted badly, since this raises the risk that Trump will also follow through on his threats to impose reciprocal country-specific tariffs soon, including a proposed 25% on imports from the EU.” The fear is that this could be just the beginning of a much wider trade conflict, impacting not just housing but the entire economy.

Remember, this all started back in February when Trump first announced these tariffs. He initially suspended them for 30 days for Canada and Mexico, hoping they would step up border enforcement. He did, however, impose a 10% tariff on China last month, bringing the total to 20% now. The focus with China is on cracking down on the production of chemicals used to make fentanyl, a deadly drug.

President Trump is expected to address Congress and the nation soon, and it’s anticipated he’ll talk about the economy and inflation. It will be interesting to see how he addresses these tariffs and the concerns about rising costs, especially in the housing market.

The Bottom Line for Homebuyers

So, where does all of this leave us? Well, it's still quite uncertain how long these tariffs will last and what the ultimate impact will be. But one thing is clear: homebuilders are worried. They’re warning that these tariffs on Canada and Mexico are likely to increase building costs, which could translate to higher prices for new homes and potentially even impact the broader housing market and home renovation projects. Whether this is a short-term blip or a more lasting shift remains to be seen. But if you're in the market for a new home, it’s definitely something to keep an eye on. The dream of homeownership might just be getting a little more expensive in the face of these trade tensions.

Navigate Economic Uncertainty with

Norada Real Estate Investments

Whether it's recession or inflation, turnkey real estate offers stability and consistent returns.

Diversify your portfolio with ready-to-rent properties designed to withstand economic fluctuations.

Speak with our expert investment counselors (No Obligation):

(800) 611-3060

Get Started Now 

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Filed Under: Economy Tagged With: 2% Inflation, Economy, Federal Reserve, inflation, interest rates, rate of inflation, Recession

Will Higher Tariffs Lead to Inflation and Higher Interest Rates in 2025?

February 27, 2025 by Marco Santarelli

Will Higher Tariffs Lead to Inflation and Higher Interest Rates in 2025?

Have you ever gone to the grocery store and noticed that your favorite snacks suddenly cost a lot more? Or maybe you're thinking about buying a new TV, but the prices seem to have jumped up? These price increases, what we call inflation, can really hit our wallets hard. And lately, there's been a lot of talk about something called tariffs – taxes on goods coming into our country from other places.

So, the big question everyone's asking is: Will higher tariffs lead to inflation and higher interest rates? The short answer is yes, very likely, higher tariffs can indeed push up prices and potentially lead to higher interest rates. Let's dive into why this happens, and what it all means for you and me.

Will Higher Tariffs Lead to Inflation and Higher Interest Rates? Let's Break it Down

Understanding Tariffs: What Are They and Why Do They Matter?

Imagine you're buying a cool toy car made in another country. To get that toy car into our stores, sometimes our government puts a tax on it – that's a tariff. Think of it like a toll you have to pay to bring something into the country. Tariffs are usually put in place to try and help businesses here at home. The idea is that by making imported goods more expensive, people will buy more stuff made in our own country. Governments might also use tariffs to make money or to put pressure on other countries. But whatever the reason, tariffs change the price of things we buy, and that’s where inflation comes in.

How Tariffs Pump Up Inflation: The Price Hike Effect

So, how exactly do higher tariffs cause prices to go up – inflation? It’s actually pretty straightforward when you break it down. There are a few main ways tariffs can lead to goods inflation, which is when the prices of things we buy in stores go up:

  • Direct Price Increase on Imports: This one's the most obvious. When a tariff is slapped on imported goods, it's like adding an extra cost right away. Companies that bring these goods into the country have to pay that tariff. Guess who ends up paying that extra cost? Yep, you and me. Businesses often pass that extra cost onto us as higher prices. For example, if there's a tariff on imported clothes, your favorite shirt from overseas is going to cost more at the store. According to a February 2025 NPR article, proposed US tariffs could lead to higher prices on all sorts of everyday items we get from places like Canada, Mexico, and China (NPR article on Trump tariffs and higher prices). It's simple math: higher tax = higher price.
  • Domestic Companies Jack Up Prices Too: It’s not just imported stuff that gets more expensive. When tariffs make imported goods pricier, companies that make similar things here can also raise their prices! Why? Because suddenly, their stuff looks cheaper compared to the imported stuff. They know people will be more likely to buy their products now that the imported competition is more expensive. It's like when the gas station across the street raises its prices – the other stations around it might raise theirs a little too. Research from the Centre for Economic Policy Research (CEPR) supports this, suggesting tariffs give domestic producers the wiggle room to increase their prices, which adds to overall inflation (CEPR tariffs and inflation). It’s a bit sneaky, but it's just how businesses work sometimes.
  • Currency Takes a Hit, Prices Go Even Higher: Here's where things get a little more complicated, but stick with me. Sometimes, when a country puts up a lot of tariffs, it can mess with how much its money is worth compared to other countries – what we call currency value. If tariffs lead to us buying less from other countries and maybe them buying less from us (that's called a trade deficit), our currency might become weaker. A weaker currency means it costs more to buy things from other countries. So, even without the tariff itself, imported goods get more expensive. It's like a double whammy! The Bank of Canada has even pointed out that tariffs can mess up supply chains and cause inflation to jump up, especially if we can't easily find things we need here at home (Bank of Canada tariffs impact). It's like everything from overseas just got more expensive across the board.

From Inflation to Interest Rates: Why Your Loans Might Cost More

Okay, so tariffs can cause inflation – prices go up. But what about interest rates? How do they fit into all of this? Well, think of interest rates as the price of borrowing money. When interest rates go up, things like car loans, home mortgages, and even credit card bills can become more expensive. And central banks, like the Federal Reserve in the US, play a big role in setting these rates.

Central banks are like the inflation firefighters of the economy. Their main job is to keep inflation under control. When inflation starts to climb too high, what do they often do? They raise interest rates. Why? Higher interest rates make it more expensive to borrow money. This means people and businesses borrow less, spend less, and save more. Less spending can cool down the economy and help bring inflation back down to a normal level.

So, if higher tariffs cause a significant jump in goods inflation, it's pretty likely that central banks will think about raising interest rates to fight that inflation. The Federal Reserve Bank of Boston, for example, estimated that some proposed tariffs could add almost a whole percentage point to inflation! That's a big jump, and it could definitely push the Fed to consider raising rates to keep things in check (Boston Fed tariffs on inflation).

But here's the tricky part: raising interest rates can also slow down the economy. It can make it harder for businesses to grow and create jobs. So, central banks are in a tough spot. They have to balance fighting inflation with keeping the economy healthy and growing. If tariffs not only cause inflation but also hurt economic growth, central banks have a really complicated decision to make. Do they raise rates to fight inflation, even if it slows down the economy more? Or do they hold off on raising rates to support growth, even if inflation stays a bit higher? Economists at CEPR point out this exact dilemma – it's a balancing act between controlling prices and keeping the economy moving forward (CEPR monetary policy response). It's not as simple as just raising rates whenever prices go up.

Real-World Examples: Tariffs in Action

To see how this all works in real life, we can look back at when the US put tariffs on steel, aluminum, and goods from China in 2018. Studies estimate that these tariffs added a bit to inflation – somewhere between 0.1 and 0.2 percentage points to what's called core inflation (that's inflation without food and energy prices, which can jump around a lot).

At that time, inflation was already around 2.2% to 2.5%. During this period, the Federal Reserve did raise interest rates several times. Now, it's hard to say exactly how much of those rate hikes were because of the tariffs, since there were other things happening in the economy too, like strong economic growth.

But it's definitely something that economists were watching closely, and it shows how tariffs can play into the inflation and interest rate picture. You can even see the inflation data from that time from the Bureau of Labor Statistics (BLS CPI data).

Looking ahead, some experts think that new tariffs being talked about, like those proposed in 2025, could push inflation even higher – maybe up to 3% or 4%! Capital Economics, for instance, suggests tariffs could really complicate things for the Federal Reserve, making it harder for them to lower interest rates in the future because of the added inflation pressure (Capital Economics inflationary impact of tariffs).

And globally, the Bank of Canada in early 2025 even cut interest rates, but warned that a tariff war could be “very damaging” and cause persistent inflation, potentially forcing them to raise rates later on (Bank of Canada rate cuts). These examples show that tariffs aren't just abstract ideas – they have real effects on prices and interest rates in the real world.

When Tariffs Might Not Cause Big Inflation Hikes (The Exceptions)

Now, it's important to remember that the economy is complicated. It’s not always a straight line from tariffs to inflation to higher interest rates. There are times when tariffs might not lead to big jumps in inflation or interest rate hikes. Here are a few situations to keep in mind:

  • If We Don't Rely Heavily on Imports: If a country makes a lot of its own stuff, and doesn't import too much of a certain product, tariffs on those imports might not cause a huge price shock. For example, if the US puts tariffs on imported steel but already makes a lot of steel domestically, the price increase might be smaller because we can just buy more American-made steel instead. CEPR's analysis points out that how much tariffs affect inflation really depends on how much a country relies on trade in the first place (CEPR tariffs and inflation). If we can easily switch to buying local, the tariff impact is less.
  • If Our Money Gets Stronger: Sometimes, other things happen in the world that can make a country's money stronger. If a country's currency becomes more valuable, it can actually offset some of the price increases from tariffs. A stronger currency makes imports cheaper, which can help keep inflation in check, even with tariffs. The Boston Fed mentioned that currency changes can be a factor when looking at the impact of tariffs on inflation (Boston Fed tariffs on inflation). So, currency strength can act as a buffer against tariff-driven inflation.
  • If Central Banks Decide Not To Raise Rates: Even if tariffs cause some inflation, central banks might choose not to raise interest rates if they think the inflation is only temporary or if the economy is already weak. Remember the Bank of Canada example? They actually cut rates even with tariff risks, because they were more worried about economic growth than inflation at that moment (Bank of Canada rate cuts). Central banks have to make tough calls, and sometimes fighting inflation isn't their top priority, especially if the economy is struggling.

Who Feels the Pinch? Sector-by-Sector Impacts

It’s also worth noting that tariffs don't affect every part of the economy equally. If tariffs are placed on a wide range of goods – like a broad-based tariff on everything coming into the country – the impact on inflation can be much bigger. The Budget Lab at Yale University estimates that a 10% tariff on all imports could raise consumer prices quite a bit, anywhere from 1.4% to a whopping 5.1%! (Yale Budget Lab tariffs). That's a significant jump that would be felt by pretty much everyone.

On the other hand, if tariffs are only put on specific goods, like just steel or just certain electronics, the impact might be more limited to those specific industries. For example, tariffs on steel might mainly affect companies that use a lot of steel, like car manufacturers or construction companies. The price of cars and buildings might go up a bit, but the price of other things might not change much. So, the breadth and scope of the tariffs really matter in determining how widespread the inflationary effects will be.

Wrapping It Up: Tariffs, Inflation, and Your Wallet

So, to bring it all together: will higher tariffs lead to inflation and higher interest rates? Based on what we know from economic research and real-world examples, the answer is likely yes. Higher tariffs can definitely contribute to goods inflation by making imported goods more expensive, giving domestic companies room to raise prices, and potentially weakening our currency, which makes imports even pricier. This inflation, in turn, can push central banks to raise interest rates as they try to keep prices under control.

However, it's not a guaranteed outcome every time. The actual effect of tariffs on inflation and interest rates depends on lots of things – how much we rely on imports, how strong our currency is, and how central banks decide to respond. But the general trend is clear: tariffs tend to push prices up, and that can have ripple effects throughout the economy, potentially making borrowing more expensive for all of us.

As someone trying to understand what's happening in the economy, I think it's crucial to see how policies like tariffs, which might seem simple on the surface, can have complex and sometimes unexpected consequences for our everyday lives. It's not just about trade numbers and economic theories – it's about the prices we pay at the store, the interest rates on our loans, and the overall health of our economy. Keeping an eye on these connections helps us all be more informed and make better decisions in our own financial lives.

Navigate Economic Uncertainty with

Norada Real Estate Investments

Whether it's recession or inflation, turnkey real estate offers stability and consistent returns.

Diversify your portfolio with ready-to-rent properties designed to withstand economic fluctuations.

Speak with our expert investment counselors (No Obligation):

(800) 611-3060

Get Started Now 

Read More:

  • Will the Fed Achieve Its 2% Inflation Target in 2025: The Road Ahead
  • Are We in a Recession or Inflation: Forecast for 2025
  • Inflation's Impact on Home Prices & Mortgages: What to Expect in 2025 
  • Interest Rates vs. Inflation: Is the Fed Winning the Fight?
  • Is Fed Taming Inflation or Triggering a Housing Crisis?
  • Will Inflation Go Down Below 2% in 2025: Economic Forecast
  • How To Invest in Real Estate During a Recession?
  • Will There Be a Recession in 2025?
  • When Will This Recession End?
  • Should I Buy a House Now or Wait for Recession?

Filed Under: Economy Tagged With: 2% Inflation, Economy, Federal Reserve, inflation, interest rates, rate of inflation, Recession

Will the Fed Achieve Its 2% Inflation Target in 2025: The Road Ahead

February 25, 2025 by Marco Santarelli

Remember back when a dollar actually felt like it could buy you something? Seems like a distant memory, right? Over the past few years, we've all felt the pinch as prices for pretty much everything – from gas in our tanks to groceries in our carts – have jumped up. The big question on everyone's mind, and especially on the minds of folks at the Federal Reserve (the folks in charge of keeping our money system healthy), is: The Road to 2% Inflation: Are We There Yet?

Well, if you're looking for a straight yes or no, here it is: not quite, but we’ve definitely come a long way. Inflation, which peaked in mid-2022, has thankfully come down quite a bit. But hitting that sweet spot of 2% inflation that the Fed aims for? That’s proving to be a bit trickier than we hoped, and recent data suggests progress might be slowing down. Let's break down what's been happening with prices and see where we actually stand on this bumpy road back to normal.

Is Fed's 2% Inflation Target Possible in 2025: The Road Ahead

The Inflation Rollercoaster: A Look Back

To really understand where we are now, we need to take a quick trip down memory lane. Let’s look at how prices have been behaving since before the pandemic hit. Thanks to the recent data and article published by the Federal Reserve Bank of St. Louis, we can get a clear picture.

Think back to the years before 2020. From 2016 to 2019, things were pretty stable. Prices were inching up at a rate of about 1.7% each year. This is based on something called the Personal Consumption Expenditures (PCE) price index. Don't let the fancy name scare you; it’s just a way of measuring how much prices are changing for all the stuff we buy as people – from haircuts to TVs.

The Fed really likes to watch this PCE number because it gives a good overall view of inflation. Their target? They want to keep inflation at 2% annually. Close to 2%, but not too much higher or lower, is considered healthy for the economy.

Now, if we look at this PCE price index chart going back to 2016, you’ll see that nice, steady climb before 2020. Then, BAM! The pandemic hits. Suddenly, things went a little haywire.

Evolution of the PCE Price Index
Image Credit: Federal Reserve Bank of St. Louis

As you can see from the chart above, in the very beginning of the pandemic, prices actually dipped below where they were expected to be if they had just kept growing at that pre-pandemic 1.7% pace. This makes sense, right? Everyone was staying home, businesses were closed, and demand for many things dropped.

But then, things flipped. Starting in late 2020 and going all the way to mid-2022, prices took off like a rocket! We saw some of the highest inflation rates in decades. Since mid-2022, thankfully, the rate of price increases has slowed down. However, and this is the key takeaway, even though inflation is slower now, prices are still going up, just not as fast.

By the end of 2024, as the data shows, overall prices were about 10% higher than they would have been if we’d just stuck to that pre-pandemic trend. Think about that – ten extra dollars for every hundred you used to spend on the same basket of goods. That’s a real bite out of our wallets.

The Inflation Peak and the Road Down (…and Maybe a Plateau?)

Let's look at another key chart that shows the rate of inflation – how quickly prices are changing from one year to the next. This is often called headline inflation.

PCE Inflation Rates and the Federal Funds Rate
Image Credit: Federal Reserve Bank of St. Louis

This second chart is really interesting because it shows both the overall inflation rate (the blue line) and the inflation rate when we take out energy prices (the green line). Energy prices, like gas and heating oil, can jump around a lot and sometimes give a misleading picture of what’s really happening with underlying inflation.

You can clearly see that sharp drop in inflation at the start of the pandemic, followed by that massive spike peaking in mid-2022. After that peak, the blue line shows inflation coming down pretty steadily. That's the good news! It means the really rapid price increases we saw are behind us.

However, if you look closely, especially at the green line (inflation excluding energy), something interesting pops out. While headline inflation (blue line) dropped quite a bit in 2024, a lot of that drop was because energy prices actually fell. If you take energy out of the picture, the green line shows that the progress in lowering inflation might have stalled a bit recently. That’s a bit concerning because it suggests that while lower gas prices are helping us feel a little relief, the underlying problem of higher prices across the board might still be stubbornly sticking around.

And look at that red line on the chart – that’s the federal funds rate. This is the interest rate that the Federal Reserve controls, and it's their main tool to fight inflation. Notice how for a long time, even as inflation was starting to rise in 2021, the Fed kept interest rates near zero? They didn't start raising rates until March 2022! In my opinion, that was a bit late. Many of us were wondering why they waited so long as prices were clearly climbing. Once they did start raising rates, though, they did it aggressively. Interest rates shot up and stayed high for a while. In late 2024, they started to bring rates down a little bit, signaling that maybe they felt they were starting to get inflation under control.

Is Inflation Just About a Few Things Going Up? Nope, It’s Broad-Based.

When inflation first started to take off, some people thought it was just because of a few specific things. Maybe it was just used cars getting expensive, or maybe it was just lumber prices going crazy. The idea was that these were temporary problems that would sort themselves out soon. This idea was often called “transitory inflation.”

But as 2021 went on, it became clear that inflation was much broader than just a few items. It wasn't just one or two things getting more expensive – it was lots of things. This is what we mean by broad-based inflation.

The Federal Reserve Bank of St. Louis provided another really helpful chart that shows this:

Estimated Distribution of Annualized PCE Inflation
Image Credit: Federal Reserve Bank of St. Louis

This chart might look a little complicated, but it’s actually quite insightful. Imagine each line in this chart as showing a snapshot of all the different things we buy in different years. The horizontal axis shows how much prices changed for each of those things, and the vertical axis shows how much of our spending goes to those items.

The orange line, representing 2016-2019, is our pre-pandemic benchmark. See how it's mostly clustered around the middle, around 0% to 5% inflation? That’s normal.

Now look at the lines for 2021 and 2022. These lines shift way over to the right. This means that in those years, a much larger share of the things we buy saw higher price increases than in the pre-pandemic years. Inflation wasn't just hitting a few categories; it was hitting almost everything.

Even in 2024, while the line has shifted back to the left a bit (good news!), it’s still significantly to the right of that pre-pandemic orange line. This tells us that even now, most of the things we buy are still experiencing higher inflation than they used to. It’s not just a few outliers anymore; it’s widespread. According to the data, about three-quarters of what we spend our money on in 2024 was still experiencing higher inflation than before the pandemic.

This broad-based nature of inflation is a key challenge. It means that getting back to 2% isn't just about fixing a few supply chain bottlenecks or waiting for one specific price to come down. It means we need to see a more general slowing of price increases across the entire economy.

Breaking It Down: Inflation by Product Category

To get even more specific, let's look at how inflation has behaved in different categories of things we buy. The Federal Reserve Bank of St. Louis provided a table that breaks this down:

Annualized Inflation Rates by Product Category Food Energy Core Goods Core Services Excluding Housing Housing All
2016-19 0.2% 4.2% -0.6% 2.2% 3.4% 1.7%
2020 3.9% -7.7% 0.1% 2.0% 2.2% 1.3%
2021 5.6% 30.6% 6.2% 5.3% 3.7% 6.2%
2022 11.1% 6.7% 3.2% 4.9% 7.7% 5.5%
2023 1.5% -2.0% 0.0% 3.4% 6.3% 2.7%
2024 1.6% -1.1% -0.1% 3.5% 4.7% 2.6%

Take a look at this table. Energy is the only major category where inflation was lower in 2024 than it was in the pre-pandemic period. This confirms what we saw in the charts – falling energy prices really helped bring down the overall inflation rate in 2024.

But look at everything else. Food prices are still rising faster than they were before. “Core goods” (things like appliances, furniture, clothes) actually saw deflation (prices going down) before the pandemic, but in 2024, they were essentially flat. “Core services excluding housing” (things like haircuts, transportation, entertainment) and “Housing” are all showing much higher inflation rates than they did before.

What this table really drives home is that inflation isn’t just an energy story. It’s impacting almost every part of our lives. Even though the overall inflation rate in 2024 was 2.6%, which is closer to the Fed’s 2% target, it's still significantly higher than the 1.7% we saw in 2016-2019. And importantly, that 2.6% is still above the Fed’s 2% goal.

So, Are We There Yet? The Verdict.

Let's circle back to our main question: The Road to 2% Inflation: Are We There Yet? Based on all this data, I think it's clear that we're not quite there yet. We've made real progress in bringing inflation down from those scary highs of 2022. Falling energy prices have been a big help. But when you dig deeper, you see that inflation is still pretty widespread across the economy, and in many key areas like housing and services, price increases are still running hotter than before the pandemic.

The Fed wants to see inflation at 2%. In 2024, we ended the year at 2.6%. That’s closer, but still a noticeable gap. And the fact that progress seems to have slowed down when you exclude energy prices is a bit worrying. It suggests that getting that last bit of inflation down to 2% might be the hardest part.

What caused this whole inflation mess in the first place? Well, that’s a whole other discussion, but the author of the data we've been looking at hints that the massive government spending during the pandemic, combined with very low interest rates from the Fed, played a big role. And with government spending still high, there might be more inflationary pressure to come.

For now, the road to 2% inflation feels like it's still under construction. We've traveled a good distance, but there might be more bumps and detours ahead before we reach our destination. We'll have to wait and see what the next set of inflation data tells us, but for now, I'm keeping a close eye on prices and hoping we can finally get back to that 2% target without too much more pain.

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Read More:

  • Are We in a Recession or Inflation: Forecast for 2025
  • Inflation's Impact on Home Prices & Mortgages: What to Expect in 2025 
  • Interest Rates vs. Inflation: Is the Fed Winning the Fight?
  • Is Fed Taming Inflation or Triggering a Housing Crisis?
  • Will Inflation Go Down Below 2% in 2025: Economic Forecast
  • How To Invest in Real Estate During a Recession?
  • Will There Be a Recession in 2025?
  • When Will This Recession End?
  • Should I Buy a House Now or Wait for Recession?

Filed Under: Economy Tagged With: 2% Inflation, Economy, Federal Reserve, inflation, interest rates, rate of inflation, Recession

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