Economic Outlook 2025: Inflation, Jobs, and Market Trends

Less than a month into President Trump’s second term, businesses, economists and consumers all are trying to navigate his flurry of early activity and its financial impact both in the U.S. and around the world. Despite some uncertainty, we know the U.S. economy remains strong, and Federal Reserve policy has, so far, remained steady. But the potential for tariffs has caused a shift in global relationships.

To make sense of it all, I spoke with Shandor Whitcher, an economist with Moody’s Analytics, on the latest episode of the Market Pulse podcast. Shandor is an expert in commercial real estate, single-family housing and consumer credit, and a frequent speaker on national and regional economic trends. His analysis cut through, despite his voice being a bit hoarse from cheering his hometown Philadelphia Eagles to a Super Bowl win the night before!

Inflation in 2025

Sojka: There’s a lot to cover so let’s just dive in. Inflation management is a big concern for consumers right now. Where do things stand?

Witcher: Thanks, Dave. Inflation has cooled quite a bit from its peak. The overall CPI rose 0.4% last month, but nearly half of that increase was due to a spike in energy prices, which tend to be much more volatile. So if we strip out food and energy, core inflation rose just 0.2%, continuing a downward trend. Shelter costs, which are the biggest driver of inflation, are still rising, but at a more manageable pace. Vehicle prices, both new and used, are stabilizing, and repair and insurance costs, which had been soaring, are finally starting to level off. 

Looking ahead, inflation should continue easing through the first half of 2025, particularly as some of last year's price pressures fade. Things like new tariffs or changes in immigration policy could push inflation back later in the year. For now, though, we're seeing a steady disinflationary trend.

Fed Expected To Hit Pause As Job Growth Cools

Sojka: Let’s break out some of those components. We had a good jobs report last week, 143,000 jobs added and unemployment edged down to 4%. What's the outlook for the first half of the year?

Witcher: We expect underlying job growth to settle closer to 175,000 in the coming months. Still healthy, but gradually decelerating. Industry-wise, healthcare continues to be a major driver of job growth, while retail has also seen steady gains. But revisions showed that professional and business services weren't quite as strong as initially thought, particularly in temporary employment and computer programming roles. 

This report doesn't change the Fed's view that the labor market is gradually coming into balance. We expect them to pause rate cuts while they assess how things like tariffs, immigration changes, and potential tax cuts impact inflation and growth. The extent depends on how aggressively they're implemented. So the Fed is likely to wait for a bit more clarity before making its next move, which we will think will come by the September 2025 meeting.

Tariffs, Geopolitical Friction and ‘Friend Shoring’ 

Sojka: Let's look at global trade. There are some geopolitical tensions out there, in addition to tariffs. What are their impacts on global trade and economic stability? 

Witcher: I'll start with tariff policy. Higher tariffs would raise costs for businesses and consumers. This adds to inflationary pressure. It also puts strain on global supply chains. So it's inflationary and it's counter to growth. 

As far as geopolitical tensions go, we've got conflicts in Eastern Europe, the Middle East, and ongoing U.S.-China frictions. These disruptions can increase shipping costs, reroute trade flows, and make supply chains less efficient. A prime example of this is instability in the Red Sea, which has already led to higher transportation costs moving goods between Asia and Europe. 

Businesses have been adjusting by diversifying their supply chains and increasing trade with more stable partners, a trend sometimes called friend shoring. So there's also been more investment in domestic manufacturing to reduce reliance on global suppliers. The big question is whether these pressures will slow global growth. If policy shifts remain measured, trade can continue adapting. But if we see increases in tariffs or escalating geopolitical tensions, it'll weigh heavily on economic activity and cause inflation.

Recession Risks

Sojka: Let’s talk about the ‘R’ word: Recession. What does Moody’s see as the chances for one this year and what factors could trigger it?

Witcher: The U.S. economy is in very solid shape. That said, risks are mounting and the path forward has grown less certain. Historically, the U.S. experiences recession every six to seven years on average, which means the unconditional probability of a downturn in any given year is around 15%. Given current conditions, we estimate the risk of recession over the next 12 months is about 25%, so higher than normal but not a threat. 

Uncertainty around fiscal policy could weigh on business investment and consumer sentiment, which also stands to slow growth. Another key risk here is the bond market. Long-term interest rates have risen sharply, reflecting investors' concern over policy uncertainty, fiscal sustainability and potential inflationary pressures. If rates remain elevated for an extended period, that could tighten financial conditions, and that'll slow lending and dampen economic activity.

Stock Market Outlook

Sojka: Can the stock market maintain its current momentum or might there be some kind of a correction this year?

Witcher: Stock prices are very richly valued, kind of potentially bordering on frothy, and that presents quite a bit of risk to the economy. The households that do the bulk of the consumption, those that own stocks, they're feeling well and they're going out and spending that money, putting it back into the economy. So there's quite a bit of risk on that front.
Our baseline is for equity prices to basically tread water in the year ahead, kind of give corporate earnings a chance to catch up with valuations, let everything come closer to equilibrium. But we're not expecting any kind of large selloff in the year ahead.

The Impact of AI

Sojka: How will emerging technologies like AI and automation reshape industries in the job market?

Witcher: Artificial intelligence and automation are kind of already reshaping these industries, right? The biggest impacts by our outlook are still to come. Over the long run, AI is well positioned to provide a significant boost to later productivity, not just improving efficiency and routine tasks, particularly in the latter half of the decade.

The industries that stand to benefit most are those with highly repetitive, data-intensive tasks — finance, healthcare, logistics. But we do think AI will have an impact across sectors. Automation undoubtedly will change the nature of some jobs. The broader trend suggests AI will complement rather than replace most workers. So as productivity rises, businesses will be able to expand output without increasing labor costs. And this is a net tailwind to wage growth over the extended horizon.

Looking Ahead

As 2025 unfolds, the Market Pulse Podcast will continue to provide expert insights and

analysis to help businesses and individuals navigate the shifting economic landscape.

From tariffs to housing to monetary policy, the panel’s thoughtful discussion offers

valuable perspectives on the challenges and opportunities ahead.

For more insights and to share your own predictions, reach out to the Equifax Advisors

at riskadvisors@equifax.com. Here’s to a year of adaptability, innovation, and growth!

Be sure to subscribe to our podcast wherever you listen: Apple Podcast, Spotify, YouTube, and more.

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