As we settle into a New Year, there is no doubt that 2025 will bring economic changes that may affect our day-to-day lives. Planning for those changes as best as possible means seeking information that can help you adapt. In this blog, we will discuss the potential economic landscape that is expected in 2025 and how to plan better for any possible changes or challenges to your financial life.
What Are the Projected Economic Growth Trends for 2025?
Economic policy typically shifts when a new administration takes office in Washington, D.C. These changes generally impact the economy as well as consumer confidence. For example, the Gross Domestic Product (GDP) for 2025 is projected to grow at just 2.1%, which is lower than the previous year by 0.6 basis points, according to Dr. Christopher Kuehl and Mr. Keith Prather of Armada Corporate Intelligence. The GDP is a measure of how well an economy is doing due to the movement of goods and services within a certain time period.
The projection of a lower GDP this year could lead to a recession, resulting in negative effects such as unemployment, lower income, and a less productive economy. This type of forecast is not good news but knowing that it could happen can help you plan ahead. For example, you could start saving more this year, as well as refinance loans to consolidate bills and lower your interest rate to save money, so you will be in a better financial position if a recession occurs.
How Does Inflation Affect Your Spending Power?
Post-COVID inflation affected the world economy, with the prices of everyday goods and services rising quickly. This change created higher rates on mortgages, auto loans and other types of loans. The projected Personal Consumption Expenditures (PCE) price index, which is used to measure inflation, is expected to average around 2.5% in 2025, although changes in economic policies could spur further inflation.
Here are a few things you can do to prepare to deal with high costs and rates:
- Revisit Your Monthly Household Budget to identify ways to cut back on spending. The start of a New Year is the ideal time to review your finances. Look for ways to spend less and save more so you will be ready if prices start to climb further.
- Shop Smarter for lower-cost options such as generic brand foods, discounted or less-expense services and non-brand clothing to save money. Coupons remain a thing, so check your mailers, email, and online sites such as Groupon to discover ways to get discounts on items you need.
- Make Savings a Priority is the best way to improve your financial wellness. Set aside money for short- and long-term savings goals and an emergency fund. It is even easier to save when you set up automatic payroll deposits to these accounts. When you save better you invest in yourself and your financial future, which will help reduce the stress of uncertain economic times.
What Can We Expect from the Housing Market in 2025?
The Federal Reserve’s actions to lower interest rates over the past few years helped reduce the high mortgage interest rates that homebuyers were experiencing, but not by much. In early 2025, rates remained at 7.11% and are expected to fluctuate between 5% and 7% for the average 30-year fixed mortgage.
Even with a slight decrease in interest rate this year, that action alone will not resolve the housing affordability crisis, says CNET.com. This is because potential homebuyers continue to battle slow wage growth and housing shortages that keep home prices at record highs.
The following graph shows how much mortgage interest rates have increased since 2020.
How Will Employment Trends Affect Financial Stability?
The economy can affect unemployment, especially when the GDP is not tracking well. For example, when the GDP is lower, the job market tends to slow, and companies will hire fewer new employees.
One way to avoid unemployment is by upskilling, learning advanced skills to make you stand out in a competitive job market. Upskilling is available through online courses. For example, Microsoft, Google, and LinkedIn offer courses that provide the learner with certifications that can be added to a resume.
Another way to establish more financial stability is to diversify income streams. These include part-time work at a business or retailer, becoming an influencer in a topic you enjoy on social media platforms, selling handmade products such as candles or clothing, providing online services such as writing resumes, working in an online Call Center, and much more. The key is to explore and find a part-time job or side gig that brings in additional income to provide you with more financial stability.
How Do Changes in Monetary Policy Affect Your Money?
Changes to monetary policy can affect your finances in a few separate ways. As discussed previously, when the Federal Reserve changes rates, this change affects the interest rates on loans. Policies that require increasing the federal rate will make it more expensive for people to borrow money.
There are advantages to such a high-rate environment – higher interest rates on savings products. Increases to the federal rate typically means rates on Savings, Money Market Accounts and Certificate tend to be higher. These products are great ways to save money without the risk of investing in the stock market.
Alternatively, if the Federal Reserve reduces rates, this lowers lending rates, making loans more affordable. When this happens, be sure to review any loans you have to see if refinancing at a lower rate or consolidating your debt can save you money.
How TCU Can Help
Your financial wellness starts at Travis Credit Union. TCU is here to help with any financial challenges brought on by the economy in 2025. Travis offers a variety of loans such as mortgages, business loans and auto loans to help you borrow when the time is right. Moreover, TCU has an array of savings products so you can build your financial nest egg today for tomorrow. Open an account today!
What’s more, TCU’s focus on financial education means we offer members the tools they need to learn more about money and money management so they can make the right financial decisions in any economic landscape. Get started on your financial journey today at Traviscu.org.