Charlotte Economist John Connaughton Ponders Inflation And Recession In 2025
In a period of heightened uncertainty, UNC Charlotte financial economist John Connaughton puts the chance of a return of inflation in 2025 at 60/40 and the prospect of a recession at 30/70.
“For 2025, there are some big questions,” John Connaughton said. “What will be the effect of the new administration? Will there be a recession or a boom? The recession question will be complicated by two issues. First, will fiscal policy by Congress and the president continue to fight the Federal Reserve and its attempt to slow inflation? Second, will the new administration be successful in implementing its supply side agenda and retain the 2017 Trump tax cuts, or will Washington bog down in partisan politics?”
Connaughton presented the North Carolina Economic Forecast 2025 First Quarter Report during the Charlotte Business Journal’s Economic Outlook session on March 4 at The Dubois Center at UNC Charlotte Center City. The report has been a leading source of economic information for North Carolina for over 40 years.
For North Carolina specifically, sluggish growth during the fourth quarter of 2024 is a direct result of Hurricane Helene and its impact in Western North Carolina, Connaughton said. Recovery will take time, because of the nature of the damage and the impact of the lack of flood insurance.
From a broader perspective, economic data over the coming months will play a pivotal role in determining Federal Reserve interest rate policy and the balance between a return of inflation, a recession or a boom, Connaughton said.
“In addition to fiscal policy concerns, we have seen the U.S. unemployment rate rise from 3.3 percent in May of 2023 to 4.0 percent in January of 2025,” he said. “As a result of the weakness in the labor market the Federal Reserve began reducing interest rates in September of 2024. By December of 2024 the Fed Funds rate dropped by 100 basis points.”
During 2025, depending on economic data, the Federal Reserve could continue with interest rate reductions by up to another 50 basis points by year-end, Connaughton said. Yet, if spending continues, inflation could return. Despite the uncertainty, he remains cautiously optimistic.
“The bottom line here is, if things don’t get too crazy, both internationally and domestically in terms of policy changes, we are probably looking at a pretty good 2025,” he said. “Not as good as in 2024, but still probably pretty good.”
Following the North Carolina Economic Forecast presentation, Connaughton joined Federal Reserve Bank of Richmond regional executive Matt Martin for a panel discussion moderated by Ethan Chiang, associate dean for graduate programs and Department of Finance chair with the Belk College of Business. Martin also is a member of the Belk College Board of Advisors.