April 09, 2025
Our outlook for year-end 2025
Less than 1%
Economic growth,
year over year
Uncertainty around tariffs, immigration, and other policy is likely to weigh on growth in 2025. Real-time signals point to a material slowdown in GDP growth in the first quarter. We have lowered our full-year 2025 GDP forecast to below 1%.
Nearly 4%
Core inflation, year over year
The effects of U.S. tariffs and other nations’ corresponding measures put upward pressure on goods prices, leading us to increase our full-year 2025 inflation forecast to around 4%. Our forecast is based on the Fed’s preferred inflation measure, the core Personal Consumption Expenditures (PCE) price index.
3.75%–4%
Monetary policy rate
The Federal Reserve left its target for the federal funds rate unchanged in a range of 4.25%–4.5% on March 19. New Fed projections suggest a softening of the economy amid policy uncertainty. Vanguard anticipates two Fed rate cuts in the second half of 2025, which would leave the policy rate at year-end in a range of 3.75%–4%. The Fed’s next policy announcement is scheduled for Wednesday, May 7.
About 5%
Unemployment rate
We’ve increased our forecast for the U.S. unemployment rate to around 5%. Job creation in March was well above consensus, confirming U.S. labor market strength in the first quarter. But forward-looking indicators aren’t encouraging, and pockets of the labor markets are increasingly vulnerable to shocks.
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