Interest Rates to Inflation: Key Economic Trends for 2025

As we move into 2025, the economy is settling into a new rhythm after years of volatility as some key financial indicators are returning to a more typical state. Here’s a look at what’s happening and what it means for consumers based on our conversation with AC Cutts & Associates President and Chief Economist Amy Crews Cutts during the January 2025 Market Pulse webinar. 

Interest Rates and the Yield Curve

Interest rates have finally returned to their natural order, and the yield curve has uninverted. This change signals a shift in economic conditions, often seen as a positive sign for long-term growth. In past cycles, an inverted yield curve raised concerns about an impending recession. Now that it has normalized, the financial markets are breathing a bit more easily.

No Recession, But Slower Spending

The good news? Economists are no longer predicting a recession for 2025. The bad news? Consumer spending is expected to slow. While job markets remain stable, higher prices and cautious financial planning may lead people to cut back on nonessential purchases. This decrease in spending could impact retail, travel, and entertainment industries the most.

Inflation: No Further Progress Expected

Inflation has been a major concern over the past few years, and while it has stabilized, economists do not expect significant progress in reducing it further. The Consumer Price Index (CPI) shows that prices remain high, and many consumers are still feeling the sting. Essentials like food, housing, and utilities continue to strain household budgets.

The Federal Reserve’s Uncertain Path

The Federal Reserve faces a tough decision in the months ahead. While the economy is steady, inflation is not falling as much as hoped. The Fed is expected to tread carefully, balancing the risks of keeping rates too high versus cutting them too soon. Their decisions will likely depend on future economic data and any unexpected shifts in the market.

The Costliest Natural Disaster in U.S. History

On the domestic front, the 2025 Los Angeles fires have become the most expensive single natural disaster in U.S. history. The financial impact is staggering, with billions in damages to homes, businesses, and infrastructure. Recovery efforts will take years, and the ripple effects will be felt across insurance markets and local economies.

Insurance and Home Buying

As natural disasters become more frequent and severe, insurance is playing a bigger role in home purchases. Many buyers are factoring in rising insurance costs when choosing where to live. In some high-risk areas, premiums have skyrocketed, making homeownership more expensive. This trend could reshape the housing market, influencing where and how people buy homes in the future.

Final Thoughts

While 2025 brings more economic stability, challenges remain. Consumers will need to navigate high prices, changing spending habits, and an evolving housing market. The Fed’s actions and broader economic trends will shape the year ahead, but for now, caution seems to be the prevailing sentiment.

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We hope you will join us for our February 2025 Market Pulse webinar taking place on Thursday, February 20, 2025, when we will discuss how to stay ahead in account origination. To ask questions in real time and gain deeper insights before anyone else, you simply have to be there. 

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Source:

1. Amy Crews Cutts, AC Cutts & Associates, Equifax January 2025 Market Pulse Webinar

*The opinions, estimates, and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published herein represent the views of the presenters as of the date indicated and do not necessarily represent the views of Equifax or its management.