2025 Economic Outlook: More of the Same or New Opportunities?

By Doug Young – 05 January 2025

Introduction

As we begin the year 2025, it is useful to examine the economic outlook and determine whether it will bring us new opportunities or simply be a continuation of the status quo.

The actions taken by Congress and the statements made by the Federal Reserve provide important clues about what to expect in the coming year.

Congressional Spending and Debt

Over the past four years, Congress has faced numerous challenges in passing spending plans to keep the government open. Nevertheless, the absence of significant budget cuts and the reliance on continuing resolutions have resulted in a continuous increase in the national debt.

This unsustainable fiscal path, as warned by the Congressional Budget Office (CBO), raises concerns about the future of our economy.

Budget Caps and Spending Plans

A perplexing paradox emerges as the new presidential administration promises to cut spending and balance the budget while simultaneously pushing for the removal of budget caps.

This move seems counterintuitive, considering the substantial increase in the national debt during the previous administration, which rose by approximately $7.8 trillion between 2017 and 2020.

The question arises: Is there a genuine commitment to cutting spending?

Federal Reserve’s Role

Recently, the Federal Reserve made headlines by lowering interest rates by a quarter point. While this may initially seem like positive news, Chairman Powell’s cautious statements painted a different picture. He expressed concerns about persistent inflation, scaled back expectations for future rate cuts in 2025, and acknowledged increased economic volatility.

The market’s negative reaction, reflected in the surge of the VIX volatility index, underlines investor anxieties and raises concerns about inflation and the value of the US dollar.

Dollarization and Inflation

Another factor adding to the economic uncertainty is the trend of dollarization, where countries are gradually moving away from their reliance on the US dollar as the reserve currency.

Inflation erodes buying power, affecting individuals’ ability to sustain their retirement savings. A recent Time magazine article featuring the former president highlighted his view that significant price decreases are unlikely.

These factors create additional challenges for the economy moving forward.

Conclusion

The economic uncertainties of 2025, coupled with the potential lack of commitment to cutting spending, create a landscape that demands vigilance and awareness.

While the future may bring new opportunities, it is crucial to understand the underlying dynamics and be prepared for the road ahead.