by The Gould Asset Management Team
Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the First Quarter of 2025. The excerpt is posted here for the benefit of our blog subscribers.
US Enters 2025 on Uncertain Footing
The US economy expanded at a healthy 2.4% annualized rate in the fourth quarter of 2024, supported by strong consumer spending in the final months of the year. However, first quarter GDP is expected to show a marked slowdown.
The job market looked healthy as of March, before the US announcement of sweeping tariffs. Unemployment ticked up to 4.2% last month, but hiring remained strong. The economy added roughly 152,000 jobs per month in the first quarter, slightly below the 168,000 average for the same period last year. Average hourly earnings grew 3.8% year-over-year in March, cooling a bit from the 4.0% pace in February.
Consumer spending rose 0.4% in February following a drop of 0.3% in January. Spending surged on motor vehicles, furniture, and other durable goods as consumers likely moved up the timing of large purchases to get ahead of looming tariffs. Spending on restaurants and hotels declined as consumers reduced their discretionary expenditures.
US manufacturing activity slipped into contraction territory following two months of expansion. Demand softened and production slowed as input prices surged due to uncertainty surrounding the impact of potential tariffs.
The Fed’s Conundrum
The Federal Reserve held its federal funds rate steady between 4.25% and 4.50% in March, opting for a wait-and-see approach as it assesses the administration’s policy changes on trade, government spending, taxes, and immigration.
The Fed is in a tricky position. New tariffs have raised concerns about a combination of slower growth and rising inflation, a scenario often referred to as stagflation. Fed Chair Jerome Powell noted that economic uncertainty remains high. In its latest projections, the Fed sees growth slowing from 2.1% to 1.7% in 2025, while inflation is expected to rise from 2.5% to 2.8%.
Fed officials projected two 0.25% cuts to the federal funds rate this year, unchanged from their December forecast. This was largely in line with market expectations at the time. However, since the tariff announcements, market participants are now pricing in three to four 0.25% cuts.
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