Market Trends

Look Out: Three Biggest Headwinds Consumers Could Face in Q1 2025

January 30, 2025 | Tom O’Neill
Reading Time: 2 minutes

As we head into 2025, businesses are keenly watching consumer behavior and economic trends to inform their marketing and operations strategies. Q1 presents a unique set of challenges for consumers, creating potential headwinds that could impact spending and overall economic activity. 

The Resumption of Student Loan Payments

Federal student loan repayment resumed fully in October 2024, following a pandemic-era pause and a year-long on-ramp program. This will continue to have a significant impact on many households, particularly those with substantial loan balances. Millions of Americans are likely feeling the squeeze of dealing with a new, or returning, monthly expense in their budget, potentially impacting discretionary spending. This is especially true for younger demographics who tend to have higher student loan debt and make up a key segment of the consumer market.

The impact will vary across income brackets, with lower and middle-income households likely to feel the pinch more acutely. Businesses should be prepared for a potential shift in consumer spending habits as individuals continue to adjust their budgets to accommodate these new payments.

Changing Interest Rates

While there's hope that interest rates might stabilize or even decrease slightly in 2025, the current elevated rates continue to create challenges for consumers. High interest rates impact a variety of consumer activities, including:

  • Mortgage affordability: Higher mortgage rates make homeownership less accessible, affecting the real estate market and related industries like construction and home furnishings.

  • Auto loans: Elevated interest rates increase the total cost of car purchases, potentially delaying or deterring consumers from buying new vehicles.

  • Credit card debt: Many consumers rely on credit cards, and higher interest rates translate to increased debt.

These factors combined can put significant pressure on consumer finances, restricting spending power and potentially leading to increased debt defaults. 

Uncertainty Surrounding the Incoming Presidential Administration

Policy uncertainty can significantly impact consumer confidence and spending behavior. An incoming administration often brings with it changes in policy, regulations, and economic priorities. This creates uncertainty about future economic conditions, job security, and potential tax changes. With the future of American economic policy in flux with the entrance of a new presidential administration, both consumers and businesses could proceed cautiously until a longer term economic picture emerges in the coming months.

The conditions of Q1 present a complex economic landscape for consumers. Businesses that recognize these challenges and proactively adapt their strategies will be better positioned to succeed. By understanding these headwinds, businesses can anticipate changes in consumer spending and position themselves for success in the new year. 

*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.

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Tom O’Neill

Tom O’Neill

Senior Advisor

Tom O'Neill brings over 20 years of experience leading analytic consulting engagements within Financial Services and other industries. As a Senior Advisor at Equifax, O’Neill provides analytic thought leadership to client senior management, public forums, and various industry and advisory councils. While at Experian u[...]