Is The US Recession Coming in 2025?

In October 2024, the annual inflation rate increased to 2.6%, up from 2.4% in September, the lowest rate since February 2021. This rise in inflation aligns with market expectations. To put this into context, the inflation rate was 2.1% in 2019 and peaked at 9.1% in June 2022 before returning to more typical levels in October 2024 at 2.6%. 

So, is the US recession imminent in 2025? Let’s take a look at what the analysts are saying:

J.P. Morgan predicts a 45% probability for the recession 

In August 2024, J.P. Morgan analysts predicted a 35% chance of a US recession by year-end and a 45% probability by the end of 2025. Although the market will eventually face a downturn, predicting its exact timing is near impossible, and trying to do so can disrupt investment strategies.

Even in a potential 2025 recession, bear markets are temporary. Historically, bear markets last less than a year, while bull markets endure for several years. By focusing on quality stocks and sticking to a consistent, long-term investment strategy, investors can navigate volatility and position themselves for future growth.

Global CPI inflation predicted to fall to 3.3% in 2025

Global CPI inflation is projected to decline gradually to 3.3% in 2025 and 3.0% in 2026, down from 5.1% in 2024. In response, the US Federal Reserve is expected to implement only three interest rate cuts in 2025, while central banks in the euro area and China may ease policies more rapidly due to growth concerns. 

However, fiscal risks could push long-dated bond yields higher in the West. Over the long term, structural themes such as deglobalization, decarbonization, demographics, digitalization, and debt will shape the economic landscape.

There are risks of adverse scenarios, including geopolitical tensions, trade wars, or sharp increases in US Treasury risk premiums. These could lead to a renewed supply shock or a global recession. 

In the supply shock scenario, inflation would rise while economic growth weakens, affecting underwriting performance and asset portfolios. A global recession would reduce insurance demand and gains, widen credit spreads, and lower asset prices.

Despite these risks, global insurance markets are expected to see above-trend growth. Real premiums for 2025 and 2026 are forecast to grow by 2.6% annually, supported by steady economic growth, resilient labor markets, and rising incomes. 

The non-life insurance sector is seeing strong profitability, while life insurance is projected to grow by 3% in real terms, with premiums reaching USD 4.8 trillion by 2035.

Early rescission for the US, says Steve Henke

Steve Hanke, an economist at Johns Hopkins, predicts that the US will enter a recession by early 2025, citing a contraction in the money supply as a key indicator. Hanke points to the M2 money supply, which measures the total money circulating in the economy. After soaring during the pandemic due to loose monetary policy, the M2 money supply has been shrinking, falling 3% from its peak in 2022.

Hanke emphasized that a contraction in the money supply is rare and has only occurred four times since 1913, each time followed by a recession or depression. Despite the M2 supply showing signs of expansion in June 2024, Hanke warns that the effects of money supply changes take time to impact the economy, with a typical lag of one to two years. He forecasts the US will enter a recession by late 2024 or early 2025.

Hanke's outlook is further supported by smaller economic indicators, reinforcing the likelihood of a downturn. He also suggests that inflation will continue to decrease as the economy slows, following the historical trend observed after similar monetary contractions.

Some economists predict a 2.1% economic growth 

Economists predict the US economy will grow 2.1% in 2025, continuing above its expected long-term trend. Companies like Goldman Sachs, Ford Motor, and Wells Fargo have revised their growth estimates upward, lowering recession probabilities to just 27% for the next 12 months. 

Despite forecasts of a slowdown in the near term, economists now anticipate more moderate growth throughout the forecast horizon than previous expectations. 

Recent economic indicators, such as strong consumer spending and solid business investment, support this optimistic outlook. Federal Reserve Chair Jerome Powell highlighted the economy's strength, including solid labor market conditions, as central to maintaining this growth trajectory.

New CAP analysis predicts negative economic and worker impact 

An analysis from the Center for American Progress (CAP) warns that Project 2025, a far-right initiative, could trigger a financial crisis similar to the 2007-2008 recession, severely harming workers and the economy. 

Project 2025 seeks to prioritize Wall Street gains by rolling back critical financial regulations, weakening the Federal Reserve's ability to intervene during crises, and allowing risky behavior to flourish. 

CAP's analysis projects that if a financial crisis occurred today, it could lead to 8.7 million job losses by 2026, with employment recovery not occurring until 2031. Additionally, real GDP per capita would drop by $7,774 over the next five years. This combination of deregulation and limited oversight would destabilize the US economy.

Goldman and Morgan Stanley predict a positive S&P 500 surge to 6,500

Goldman Sachs and Morgan Stanley predict the S&P 500 will reach 6,500 by the end of 2025, reflecting a more than 10% increase from its current level of 5,893.62.

Both firms cite strong growth across sectors. They expect an 11% rise in corporate earnings, driven by key tech players like Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia, and Tesla. 

However, they also warn that the outperformance of these companies may shrink. Risks such as rising tariffs, bond yields, and inflationary pressures are noted, but fiscal policy changes and potential Fed rate cuts could boost growth prospects.

What's next for the US economy?

A US recession in 2025 is likely. However, moderate growth predictions, strong consumer spending, and corporate earnings suggest resilience. Despite recession concerns, long-term prospects remain optimistic, supported by tech sector strength and easing monetary policy. However, analysts warn of risks from asset bubbles and regulatory shifts that could affect the broader economy.