Economic Outlook by Paidenreiger Asset Management

Economists at Paidenreiger Asset Management predict significant changes in the U.S. economy by the end of 2025, including:

• A potential rise in unemployment.
• A sharper-than-expected cut in interest rates by the Fed.

Key Predictions

In the latest economic outlook report, economists predict that core inflation, a key measure closely watched by the Fed, could fall below its 2% target at some point in 2025. However, this improvement in inflation is expected to coincide with an increase in the unemployment rate, projected to rise to 4.4% or higher by the end of 2025.

With inflation falling and unemployment rising, the Fed may respond with aggressive rate cuts that exceed current market expectations. The report suggests that the Fed could cut interest rates by more than the 35 basis points currently expected by U.S. money markets. The optimal federal funds rate could be as low as 3.3%, necessitating at least four rate cuts in 2025.

The Fed has already begun cutting interest rates, reducing its benchmark rate by a full percentage point in each of its three meetings since September. However, central bankers have signaled a slower pace of cuts moving forward. According to the Fed’s latest economic projections, they expect to cut interest rates by just three-quarters of a percentage point through 2024.

These forecasts highlight the delicate balancing act the Fed faces as it navigates a cooling economy. While controlling inflation remains a priority, rising unemployment presents a challenge for policymakers aimed at maintaining economic stability.

This is not investment advice.