Economy off to strong start in 2025 despite possible policy changes

Robert Spendlove 

By most metrics, the U.S. economy closed out 2024 stronger than it began the year. Inflation was down, consumer confidence was up, and economic growth outpaced expectations. The economies of the U.S. and the Mountain Region performed well in 2024 while still unwinding from the pandemic-induced shockwaves of 2021 and 2022. That strength is expected to carry into 2025, though uncertainty remains persistent surrounding how potential policy changes could impact the economy with a new presidential administration and a new Congress.

Here are some economic possibilities to watch for in 2025:

Interest rates could drop more slowly. In their last policy decision of 2024, Federal Reserve officials cut their short-term benchmark interest rate for the third consecutive time during the year. That amounted to a full percentage point drop from September to December. But Federal Reserve Chair Jerome Powell also indicated that the Fed plans to slow the pace of further rate drops in 2025. The Fed forecasts two rate cuts in 2025, balancing inflation risk with a cooling labor market.

The job market may soften further. While the overheated labor market cooled in 2024, job growth was solid. The unemployment rate ticked up slightly but remains historically low. From January to November, Utah’s unemployment rate rose from 2.8 percent to 3.5 percent, while the national jobless rate climbed from 3.7 percent to 4.2 percent. This is widely considered a healthy rate of unemployment — sometimes called the “natural rate” — where there are enough job openings for job seekers and people transitioning between jobs while the portion of people without jobs remains low. The national unemployment rate is projected to inch up to 4.3 percent in 2025, with steady job growth persisting. In Utah, the unemployment rate is expected to remain similar to its current range, with an average rate of 3.1 percent in 2025, according to estimates from the State of Utah Revenue Assumptions Working Group. The Federal Reserve will be closely watching the strength of the labor market as it considers whether to move rates.

Stubborn inflation set to stick around. Inflation has dropped dramatically over the past two and a half years, with the Personal Consumption Expenditures Price Index falling from a 40-year high in the summer of 2022 to 2.4 percent in November 2024. Even so, consumers continue to feel the effects of high prices. Wages will need to grow faster than prices for a sustained period before people regain the purchasing power lost to inflation. Core inflation, which excludes the volatile categories of food and fuel, is projected to come down from 2.8 percent in 2024 to 2.5 percent in 2025. Inflation was sticky the last half of 2024, and the Fed estimates it may take until 2026 or 2027 to reach its 2 percent target. Additionally, economic policy could impact whether that inflation rate continues its downward trajectory.

Confident consumers could step up spending, fueling growth. While changes in the federal government create a level of economic uncertainty, consumer confidence is up regionally and nationally. Utah’s consumer sentiment soared 9.1 percent in November, as measured by the Kem C. Gardner Policy Institute, which noted that the large monthly change appears to be correlated with the presidential election. A similar University of Michigan survey found a 1.8 percent increase in sentiment among Americans as a whole in November. If the positive sentiment persists, high levels of consumer confidence could spur retail spending, fueling economic growth.

Heading into 2025, the Utah and U.S. economies remain strong and resilient. The state continues to benefit from strong population growth and a solid labor market.

Robert Spendlove is senior economist for Zions Bank, a division of Zions Bancorporation NA.