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
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