2025 ECONOMIC OUTLOOK

Our thoughts on the new year, as briefly as possible.

Inflation

When the green bars in the chart below are, on average, rising to the dotted white line, inflation will be back to that target 2.0% annual rate. We’ve achieved that since May, but inflation has accelerated over the past two months and we need it to slow down during the first quarter of next year.

Big picture: we’ve made a lot of progress on inflation, but there’s work left to do in 2025.

High Prices

Inflation—the rate of price increases—has slowed, but the price level —how much things cost—is still much higher than it was before the pandemic.

On average, something that cost $100 at the start of 2016 now costs more than $133. If prices had kept increasing at the pre-pandemic rate, that purchase would cost about $120 today.

Unfortunately, the price level is not going back down (it would be bad if it did). So prices will rise at a slower pace in 2025, but they’ll still feel really high throughout the year.

Federal Reserve Interest Rate Cuts