Short Description: The US economy enters 2025 with strong growth, a resilient labor market, and stubborn inflation, shaping monetary policy and mortgage rates amidst trade policy uncertainty.
Read Time: 3 minutes, 15 seconds
Main Article:
The U.S. economy is showing surprising strength as 2025 gets underway, supported by robust consumer spending and a reaccelerating labor market. GDP growth for Q4 2024 came in at a solid 2.3% annualized rate, and a key measure of underlying domestic demand was even stronger. However, this resilient economic growth is accompanied by persistent inflationary pressures. The latest data shows core CPI rising at an uncomfortably high annualized pace over recent months, prompting forecasters to revise their 2025 inflation expectations upward.
This combination of firm growth and sticky inflation is directly influencing the Federal Reserve’s policy trajectory. Financial markets and economists now broadly anticipate only a single interest rate cut in 2025, likely in the latter half of the year. This more hawkish outlook means borrowing costs will remain elevated for longer, directly impacting mortgage rates and the housing market. High mortgage rates, coupled with the ongoing “lock-in effect” from existing low-rate mortgages, are expected to keep existing home sales historically sluggish throughout the year.
Adding a significant layer of uncertainty is trade policy. The recent implementation of new tariffs on China creates modest direct headwinds to growth and inflation. However, the greater risk lies in the uncertainty surrounding potential further tariffs. This elevated policy uncertainty could dampen business investment and complicate the economic outlook. Mortgage rates face an ambiguous path based on how trade dynamics unfold—they could rise if inflation expectations increase or fall if economic growth falters and triggers a flight to safety.
Short Summary:
The US economy begins 2025 on firm footing with strong consumer spending and labor market momentum, but this strength is complicating the fight against inflation. As a result, the Federal Reserve is expected to delay significant rate cuts, keeping mortgage rates elevated and housing activity subdued. Significant uncertainty from ongoing trade policy developments adds risk to the economic and interest rate forecast for the year ahead.
