2025 US Economy: Inflation, Labor Market, and Policy Dynamics
Inflation remained elevated throughout 2025, with tariffs posing a risk of higher prices. The Federal Reserve responded by raising interest rates to cool inflation, and by the end of the year began cautiously cutting rates. Meanwhile, former President Trump pressed for rapid rate cuts and sought to replace Fed Chair Jerome Powell, creating policy tensions.
The labor market cooled during the year, as labor-force growth stalled. Notably, June and August saw job losses, and in October 105,000 jobs were lost amid the longest government shutdown in U.S. history. November added 64,000 jobs, but unemployment rose to 4.6% that month. The federal workforce declined by 271,000 since January, contributing to an increase in unemployment by about 1 million.
GDP growth showed notable fluctuations: a contraction in Q1 attributed to imports ahead of tariffs, followed by a rebound in Q2, and stronger growth in Q3. GDP growth rates were 2.8% in 2024, slowed to 2.0% in 2025, and projected to be 2.1% in 2026.
Official statistics present a nuanced economic picture that contrasts with Trump's optimistic messaging and promises from his 2.0 economic agenda, which included a manufacturing renaissance that has not yet materialized. The role of Powell as Fed Chair and the prospect of his replacement by Trump significantly influenced economic policy discussions in 2025.
