Center for Applied Economic Research
Economic Outlook 2025: Summer Update
by
Dan Rickman
and
Hongbo Wang
Center for Applied Economic Research
Spears School of Business
Oklahoma State University
July 28, 2025
240 College of Business, Stillwater, OK 74078
Summary
The Federal Reserve (Fed) is currently holding interest rates steady as it assesses the effects of trade tariffs on inflation and economic growth. The Fed is cautious about making any policy changes too quickly, drawing lessons from the 1970s oil price shocks that led to sustained inflation because of accommodative monetary policy. Following a series of interest rate cuts in the second half of 2024, our national forecast service provider, S&P Global Inc., expects the Fed to maintain its current rate range of 4.25-4.5% through 2025. Economic growth is projected to slow below its long-run trend in 2025 due to trade tariffs before recovering to trend growth in 2026. Inflation, which had eased after a peak in 2022, is anticipated to rise again due to the impact of tariffs, though this effect is expected to be temporary with the Fed holding steady on interest rates. The energy sector has been a key driver of Oklahoma's recovery post-pandemic, with oil and natural gas prices peaking in late 2022. Despite a moderate decline in oil prices, natural gas prices are expected to remain higher due to strong demand, particularly from liquefied natural gas exports. Employment in Oklahoma’s energy sector, however, continues to lag national trends, with employment in the state’s energy sector projected to fall to about one-half of pre- pandemic levels next year . The state’s overall employment growth, while positive, is forecast to slow, especially due to the contraction in the energy sector. Stronger employment growth is anticipated in industries like Accommodation and Food Services, Arts, Recreation, and Entertainment, Health Care and Social Assistance, and Other Information Services, while sectors such as the Federal Government, Machinery Manufacturing, Mining and Logging, Non-Aerospace Transportation Equipment Manufacturing, and Publishing Industries are projected to experience dramatic declines. Unemployment rates are expected to rise in both the state and the nation, but Oklahoma's rate will remain lower than the national average. The economic outlook faces several risks, including the possibility of higher-than- expected tariffs, a slow recovery in China, and political uncertainties. These factors could contribute to higher inflation, slower GDP growth, and increased unemployment in the near term.
National Economic Outlook
Baseline Forecasts
The Federal Reserve is waiting to see what the effects of trade tariffs are on inflation and economic growth before changing interest rates from their current levels. Tariffs could be expected to have one-time effects on prices if they are not countered by an increased supply of money to offset the negative growth effects of higher prices. In defending the current holding pattern, Fed Chair Powell points to the lessons of the 1970s, in which oil price shocks were accommodated by monetary policy, and sustained higher inflation resulted.
S&P Global forecasts that the Fed will maintain the current targeted range of 4.25-4.5 percent until its December meeting. The Fed is then forecast to cut rates by 0.25 percentage points in
three consecutive meetings through March 2026, before only cutting rates every other meeting over the rest of 2026, bringing the federal funds rate target to a range of 2.75%-3.00%, 0.25 percentage points below S&P Global’s e stimate of the long- run “neutral” range. S&P Global forecasts annual real GDP growth of 1.4 percent in 2025, followed by 2.0 percent in 2026. As shown in Figure 1, negative growth in the first quarter of 2025 is forecast to be followed by below-trend growth in the subsequent two quarters with the imposition of trade tariffs. Trend growth (around two percent) is forecast to be restored in 2026.
24,500
5
24,000
4
23,500
2.51
3
2.45
23,000
2
1.31
22,500
1
22,000
0
21,500
-1
-0.50
21,000
20,500
-2
US Real GDP Growth
US Real GDP Growth Level
Figure 1. U.S. Real GDP ($2017) (History through 2025Q1) (Left axis-level in $billions; Right Axis-annualized percent growth)
As shown in Figure 2, after decreasing during the pandemic recession, prices rose rapidly in the recovery that followed. Inflation peaked at 9.9 percent during the second quarter of 2022 from a combination of supply chain disruptions and overly stimulative fiscal and monetary policy. The easing of supply constraints and an increase in interest rates by the Fed pushed inflation into a downward trend. However, the implementation of trade tariffs is causing inflation to once again rise. S&P Global forecasts that the inflation impact of tariffs will be temporary, though this will critically depend on the Federal Reserve getting monetary policy right.
3.4
12
9.9
3.3
10
3.2
8
3.1
6
3.8
3.0
4
2.4
2.9
2
2.8
0
2.7
-2
2.6
-4
2.5
-6
%Change
CPI
Figure 2. U.S. CPI (82-84=1) (History through 2025M6) (Left axis-CPI level; Right Axis-annualized percent CPI growth)
Energy Outlook
Partly fueling Oklahoma’s growth since the COVID -19 pandemic shutdown of the economy was a rebound in the energy sector. As shown in Figure 3, after recovering from the pandemic, both oil and natural gas prices peaked in late 2022. In its current (July 2025) Short-Term Energy Outlook, the U.S. Energy Information Administration (EIA) forecasts natural gas prices to remain above levels experienced in 2023 and 2024 because of growth in demand, led by liquefied natural gas exports, and a slight decline in supply. Oil prices are expected to decline further throughout the period with the unwinding of OPEC+ cuts in production. As shown in Figure 4, the rebound in energy prices increased energy sector employment in both the state and the nation. Oklahoma’s energy sector employment declined earlier and by a greater percentage than oil and gas employment nationwide, going into the pandemic. The recovery in Oklahoma’s energy employment similarly has fallen behind that of the nation, which is forecast to continue. By 2026Q2, national energy sector employment is forecast to rise within twenty-two percent of its 2019Q1 level , while Oklahoma’s is expected to decline to nearly one-half of its 2019Q1 level. According to Baker Hughes Inc., the drilling rig count in Oklahoma increased from a low of 10 during the pandemic to approximately 70 at the end of 2022, which was less than one-half of the most recent peak of 145 active rigs during November 2018. The number of rigs stands at 42 as of July 25, 2025, an increase of nine from one year ago.
120
9
8
100
7
80
6
5
55.7
60
4
3.76
40
3
2
20
1
0
0
West Texas Intermediate Crude Oil Spot Price ($/bbl) Natural Gas Henry Hub Spot Price ($/MMBtu)
Figure 2. Energy Prices (U.S. Energy Information Administration-EIA) (Left axis-WTI oil price $/bbl; Right Axis-Henry Hub natural gas price $/MMBtu)
1.1
1
0.9
0.8
0.7
0.6
0.5
Oklahoma Mining Employment S&P Global Markit US Oil and Natural Gas Employment
Figure 3. Oklahoma and U.S. Energy Sector Employment (2019Q1=1) (Source: U.S. Bureau of Labor Statistics-History through 2025Q2)
Oklahoma Economic Outlook
Total nonfarm wage and salary employment in both the nation and state now exceed their pre- pandemic peaks by more than five percent (Figure 5). Because U.S. employment initially declined more during the onset of the pandemic, its initial rebound was much stronger than Oklahoma’s . U.S. employment had also grown more robustly since the pandemic recession, though Oklahoma employment grew faster and nearly caught up to U.S. employment in the first quarter of 2025 in terms of ratios to the 2019 quarter-one levels. Corresponding to the forecast of a national economic slowdown, employment growth (seasonally adjusted) in both the nation and the state is forecast to slow in 2025. As also shown in Figure 6, because of the decline in the energy sector, Oklahoma’s employment growth is forecast to fall below that of the nation through 2026Q2.
1.1
1.05
1
0.95
0.9
0.85
Oklahoma Nonfarm Employment S&P Global US Nonfarm Employment
Figure 4. Oklahoma and U.S. Seasonally Adjusted Total Nonfarm Wage and Salary (2019Q1=1) (History through 2025Q2)
Stronger employment growth (over one and one-half percent) through 2026Q2 is forecast for Accommodation and Food Services, Arts, Recreation, and Entertainment, Health Care and Social Assistance, and Other Information Services, while sectors such as the Federal Government, Machinery Manufacturing, Mining and Logging, Non-Aerospace Transportation Equipment Manufacturing, and Publishing Industries, are projected to experience dramatic (over four percent) declines.
7
6
5
4
3
2
1
0
-1
Oklahoma Employment Growth US Employment Growth
Figure 6. Nonfarm Wage and Salary Quarterly Employment Growth (Annualized) (History through 2025Q2)
Summary Tables
The statistics in Tables 1 and 2 reflect the forecast of an economic slowdown for both the state and the nation. Real GDP and nominal income growth, including wages and salaries, are expected to slow both in the state and the nation in the near term. The unemployment rates are forecast to rise through 2025 and into 2026. Consistent with the current trend, Oklahoma’s unemployment rate forecast of 3.7 percent in the second quarter of 2026 is below the forecast unemployment rate of 4.5 percent for the nation. The slowing of the national economy and the rise in the unemployment rate are forecast to help bring the inflation rate down from the tariff- induced increase expected in 2025.
Table 1. Key U.S. and Oklahoma Economic Indicators, Annualized Quarterly Growth, except for the Unemployment and Fed Funds Rate (%): Fiscal Year 2025 (Last Historical Period: 2025Q2, except for Oklahoma real GDP and income (2025Q1)) 24Q3 24Q4 25Q1 25Q2
3.11
3.31
-1.01
1.24
Oklahoma Real GDP
3.07
2.45
-0.50
1.31
U.S. Real GDP
0.68
3.06
2.58
0.12
Oklahoma Nonfarm Employment
0.86
1.29
1.32
1.05
U.S. Nonfarm Employment
1.33
5.32
9.08
2.29
Oklahoma Nominal Personal Income
3.44
4.05
5.15
4.88
U.S. Nominal Personal Income
0.64
6.92
5.83
3.29
Oklahoma Nominal Wages and Salaries
1.99
6.68
5.20
5.11
U.S. Nominal Wages and Salaries
3.32
3.24
3.23
3.01
Oklahoma Unemployment Rate U.S. Unemployment Rate (Level) U.S. Consumer Price Index Inflation
4.17 1.40 2.19 5.26
4.15 3.03 2.64 4.65
4.10 3.78 3.53 4.33
4.18 1.82 2.71 4.35
U.S. Core PCE Deflator Inflation
Federal Funds Interest Rate (Level)
Note: PCE: personal consumption expenditure
Table 2. Key U.S. and Oklahoma Economic Indicators, Annualized Quarterly Growth, except for the unemployment and Fed Funds Rate (%): Fiscal Year 2026 25Q3 25Q4 26Q1 26Q2
1.61
0.94
1.27
1.16
Oklahoma Real GDP
1.20
1.79
2.24
2.51
U.S. Real GDP
0.45 -0.31
0.01
0.10
Oklahoma Nonfarm Employment
0.66
0.16
0.21
0.23
U.S. Nonfarm Employment
1.47
2.34
5.25
3.80
Oklahoma Nominal Personal Income
4.99
5.08
6.10
4.51
U.S. Nominal Personal Income
3.78
3.44
3.61
3.15
Oklahoma Nominal Wages and Salaries
4.52
3.92
4.97
3.65
U.S. Nominal Wages and Salaries
3.29
3.61
3.67
3.70
Oklahoma Unemployment Rate U.S. Unemployment Rate (Level) U.S. Consumer Price Index Inflation
4.29 3.15 4.88 4.35
4.40 2.32 3.12 4.30
4.48 2.28 2.49 3.90
4.54 2.35 2.02 3.58
U.S. Core PCE Deflator Inflation
Federal Funds Interest Rate (Level)
Note: PCE: personal consumption expenditure
Forecasts Risks
There are many risks to the forecast, both to the upside and downside. On the upside, the U.S. labor market continues to positively surprise analysts, and tariffs have not yet had the magnitude of expected impact on prices. On the downside, sluggish economic growth from problems in its real estate sector continues to plague China, reducing world demand. There is considerable uncertainty regarding the ultimate levels of tariffs. Tariffs currently are much higher than those produced by the Smoot-Hawley Act of 1930, which is believed to have significantly contributed to the severity of the Great Depression. Higher-than-expected tariffs would lead to yet higher inflation, slower GDP growth, and higher unemployment in the near term. The trade deficit also likely would not decrease, as it is driven by too low savings levels relative to investment in the country. Savings shortfalls particularly occur with ballooning federal budget deficits. The recently passed fiscal policy is forecast to significantly increase budget deficits, further depressing the overall savings level in the nation. During the first Trump administration, the U.S. experienced both rising federal budget deficits and widening trade deficits (Lachman, 2024). Another major area of uncertainty is the prospect of mass deportation of undocumented immigrants. Undocumented immigrants comprise a small but significant part of the U.S. labor force. The departure of immigrants would result in a significant number of job vacancies, leading to upward pressure on wage inflation. This effect would only be partially offset by a decrease in demand linked to the deportation of these individuals.
References
Lachman, Desmond, 2024. “ Will Donald Trump Trigger a Debt and Dollar Crisis?” American Enterprise Institute. November 1, 2024. https://www.aei.org/op-eds/will-donald-trump-trigger-a- debt-and-dollar-crisis/
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