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Dive Brief:
The U.S. economy is headed toward a big slump in growth this year, the Conference Board said Friday, flagging a decline in housing permits and two straight months of rising claims for unemployment insurance.
Pessimism among consumers and “persistently weak new orders in manufacturing” also dim the economic outlook, the Conference Board said, noting a 0.1% dip in its Leading Economic Index in May. The index fell 2.7% in the six months ending last month compared with a 1.4% decrease in the prior six months.
“The Conference Board does not anticipate recession, but we do expect a significant slowdown in economic growth in 2025 compared to 2024, with real GDP growing at 1.6% this year and persistent tariff effects potentially leading to further deceleration in 2026,” Justyna Zabinska-La Monica, the Conference Board’s senior manager for business cycle indicators, said in a statement.
Dive Insight:
Federal Reserve officials hold a gloomier view of future economic growth than the Conference Board. In a median projection released on Wednesday, they forecast that gross domestic product will expand just 1.4% this year, or 1.1 percentage point less than last year. Fed officials in March predicted 1.7% GDP growth in 2025.
Although the economy appears “solid,” surveys of businesses and consumers “report a decline in sentiment over recent months and elevated uncertainty about the economic outlook, largely reflecting trade policy concerns,” Fed Chair Jerome Powell said Wednesday. He spoke during a press conference after policymakers decided to hold the main interest rate at a range between 4.25% and 4.5%.
Powell and other Fed officials in recent weeks have voiced concern that the highest U.S. tariffs since the 1930s may cause more than just a short-term rise in price pressures.
In their median projection, Fed officials estimated that their preferred measure of inflation — the personal consumption expenditures price index less volatile food and energy prices — will end the year at 3.1%, 0.3 percentage points higher than their March estimate and well above their 2% goal.
Other U.S. central bankers have said recently that the inflationary impact from import duties will probably fade. Instead, they have warned of weakness in the labor market.
“I’ve been saying for probably a year that I think the important thing for central bankers to do is look through tariff effects on inflation,” Fed Governor Christopher Waller said Friday.
With recent data showing price pressures easing on a monthly and 12-month basis, the central bank should consider trimming borrowing costs by 0.25 percentage points as early as their next scheduled meeting on July 29-30, Waller said.
“You’d want to start slow and bring them down, just to make sure there’s no big surprises,” he said in a CNBC interview. “But start the process — that’s the key thing.”
Easing monetary policy would help avert a setback in the job market; reports of college graduates having trouble getting jobs is just one recent sign of weakness, Waller said.
“I’m all in favor of saying maybe we should start thinking about cutting the policy rate at the next meeting because we don’t want to wait until the job market tanks,” he said.
Fed officials in their median projection on Wednesday forecast that unemployment by the end of this year will increase from 4.2% in May to 4.5%, 0.1 percentage point higher than their March forecast.
Central bankers reiterated in their March forecast that they expect to cut borrowing costs by a total of 0.5 percentage points by the end of 2025 despite higher price pressures from tariffs.