Quarterly Outlook: U.S. Economy Powers Forward, Fed Policy Becomes Cloudy

Main Takeaway

The U.S. economy continued on an impressive streak in 2024 with third-quarter real GDP growth of 3.1% annualized. Growth outside the U.S. remains weak with third-quarter GDP growth in the eurozone and Japan coming in at 0.4% and 1.2% respectively. U.S. unemployment remains low, and job growth remains positive, although the pace of hiring has slowed this year. Inflation remains sticky in the U.S. as well as globally with the latest U.S. CPI reading at 2.7%, still above the Fed’s 2% target.

Top Risks

Aggressive tariff policies could increase price pressures while also having the potential to lead to a larger scale trade war, which could have significant negative impacts on global economic growth. In recent months, unemployment has been rising and cyclical areas of the economy (such as manufacturing and residential construction) have been softening. The U.S. federal debt continues to be a long-term concern with the potential to force interest rates higher for much longer, especially at the long end of the yield curve.

Sources of Stability

The U.S. economy remains strong and is unlikely to experience a major slowdown in 2025. U.S. household balance sheets remain strong, which has spurred robust consumer spending. The U.S. also continues to benefit from a surge in corporate and research spending on the back of artificial intelligence (AI). This “AI boom” has spurred massive investment into the development of AI itself as well as the infrastructure supporting it, including semiconductors, data centers, and energy infrastructure.

For our latest perspectives on markets and economic conditions, view our Quarterly Outlook report for Q1 2025.

Sources: Bureau of Economic Analysis, European Union, Reuters, Institute for Supply Management, and United States Census Bureau.

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