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.
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