Bleaker GDP Growth in 2024: Will the U.S. Economy Face Tougher Times in 2025?

The U.S. Economy had a Bleaker GDP Growth in 2024 and the question is Will the U.S. Economy Face Tougher Times in 2025? The U.S. economy has navigated through a period of uncertainty over the past few years, with questions surrounding recession, inflation, and the Federal Reserve’s monetary policy decisions. As 2025 begins, the latest GDP data reveals a slowdown in economic growth, sparking concerns about what lies ahead. With inflation still a looming factor and the Federal Reserve keeping interest rates steady, many are wondering—will 2025 be a year of stability or fresh economic turbulence? This article breaks down the latest economic indicators, Federal Reserve statements, and expert predictions to understand what’s in store for the U.S. economy

For the past couple of years, the U.S. Economy facing some volatility. In 2023, there was serious questioning about soft landing. In 2024, the question shifted to whether the U.S. will avoid the Recession. What’s in Store for the U.S. in 2025?

Gross Domestic Product, Fourth Quarter and Year 2024 (Advance Estimate)

On Thursday (i.e.30^th January 2025), the U.S. Commerce Department, released Gross Domestic Product (GDP) data Fourth  Quarter and Year 2024 (Advance Estimate).

The Commerce Department stated on Thursday that the United States’ economic growth slowed slightly more than expected in the final three months of 2024.

According to the U.S. Bureau of Economic Analysis’s advance estimate, the real gross domestic product (GDP) grew at an annual rate of 2.3% during the fourth quarter of 2024 (i.e. in October, November, and December). The real GDP grew 3.1% in the third quarter.

The increase in real GDP in the fourth quarter was mainly due to higher government and consumer spending, which was partially balanced by lower investment. There is also a decrease in imports (which is normally a subtraction in the Calculation of GDP).

There is a decrease in Real GDP  in the fourth quarter, in comparison with the third quarter, this is primarily downturns in investment and imports.

Domestic demand is measured by final sales to private domestic purchasers (excluding inventories, trade, and government), and is known as the Gross Domestic purchase price.  This has increased by 2.2% in the fourth quarter in comparison to a 1.9% increase in the third quarter.

Personal consumption expenditures (PCE) rose to 2.3%, this is up from 1.5% in the third quarter.  The Core PCE (i.e. excluding food and energy prices) price index increased by 2.5% in comparison with a 2.2% increase in the third quarter.

Bleaker GDP Growth For 2024

The 2.8% increase in real GDP in 2024 – this is a slight decline compared to the 2.9% growth achieved in the previous year (i.e. 2023). Higher consumer spending, investment, government spending, and exports fueled real GDP growth in 2024. There was an increase in imports.

In 2024, the price index for gross domestic purchases increased by 2.3% in comparison to a 3.3% increase in 2023. The PCE price index increased by 2.5% compared to an increase of 3.8% in 2023. The core PCE price index increased by 2.8% – this is much less compared to a 4.1% increase in 2023.

Federal Reserve Statement on Monetary Policy

On Wednesday (i.e. 29^th January 2025), the Federal Reserve decided to keep its key overnight interest rate unchanged.

The Federal Open Market Committee (FOMC) statement stated that “… the committee has decided to maintain the target range for the federal funds rate at 4.25 to 4.50%,” after reducing it by 100 basis points since September 2024. There was a unanimous vote to maintain the current funds rate.

It is to be remembered that the Federal Reserve reduced its interest rate three times (that too back to back) last year.

The FOMC statement also says that “The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

The FOMC report stated that the committee will keep track of how new information affects the economic outlook. If risks emerge that could affect the FOMC goals, then the committee is prepared to adjust its stance on monetary policy accordingly.

The FOMC considers various information including analyses on inflation pressures and inflation expectations, labor market conditions, and financial and international developments, before making its decision on interest rate cuts.

During the press conference the Fed Chair Mr. Powell stated “The economy is strong overall and has made significant progress toward our goals over the past two years. Labor market conditions have cooled from their formerly overheated state and remain solid. Inflation has moved much closer to our 2 percent longer-run goal, though it remains somewhat elevated.”

Policymakers Perceive High Inflation

The Fed’s preferred gauge of inflation, for the past 12 months, has increased by 2.8% – where it has been stuck since October 2024 (according to the Commerce Department – press release which was released on Friday)

Michelle Bowman, the governor of the Federal Reserve, stated on Friday that she would only favour a gradual future easing of the interest-rate policy.

During a business conference in Portsmouth, she said she continues to perceive risks that inflation may take a higher path than anticipated and believes that last year’s improved financial circumstances may have contributed to the slowdown.

Many economists have an apprehension that this year, there may be a faster inflation growth.

Conclusion – Our Perspective

Last year, the economy defied recession fears sparked by the US central bank’s decision to raise interest rates by 5.25 percentage points in 2022 and 2023 to control inflation.

When the Federal Reserve started its policy easing cycle it stated four cuts in September, however, now the forecast is only for two rate cuts this year. This may be due to uncertainty in planned tax cuts, broad tariffs and mass deportation – to put it simply due to a change in political stance.

However, economists are of the view as inflationary. Many economists are of the view that economic growth to weaken by the second half of the year and inflation to increase again. It is a clear indication that the U.S. economy is going to have more challenging times ahead this year. Though there is no debate on recession or soft landing this year – the debate on faster inflation and slower growth or both, has sparked the economists/analysts.

Overall, The U.S. economy has proven its resilience in recent years, but 2025 presents new challenges. While recession fears have faded, concerns about inflation and slowing growth remain. The Federal Reserve’s cautious stance on interest rates reflects the delicate balance policymakers must maintain to sustain economic stability. As political and financial uncertainties unfold, the coming months will be crucial in determining whether the economy can continue its steady course or if new hurdles will emerge. One thing is certain—economic debates on inflation, growth, and monetary policy will dominate discussions throughout the year.

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