Economic Predictions for 2025: What Experts are Saying and How You Can Prepare

Financial insiders and economists offer up a wide range of predictions for the U.S. economy in 2025 — some of which must be couched in terms that leave plenty of room for uncertainties. On the one hand, many analysts are forecasting moderate GDP growth, more easing of inflation, and consumer confidence bolstered by a solid job market with employers poised to expand their salary budget in 2025.

At the “Futurecast” 2025 economic outlook tour hosted by Indiana University’s Kelley School of Business, academics also asserted that the foundation of the U.S. economy remains strong and stable as we move into 2025. However, several acknowledged that the impact of factors like geopolitical tensions, global conflicts, and the transfer of power could create a less favorable financial climate that falls short of expectations.

Providing an even more sobering viewpoint from the outset are those of individuals such as Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates. The billionaire investor warns that the conditions for an economic storm are brewing with the confluence of a soaring national debt, internal conflict, and the rise of foreign rivals that are destabilizing Western countries in a new world order. 

In a real way, the picture of the overall financial landscape that is emerging will depend on who you ask. But investigating the common threads and differences in perspectives from various experts reveals important insight into the opportunities and risks we may face. We’re drawing from these experts to bring you our top five highlights for navigating the 2025 economy from a stronger financial footing:

Get back to the basics. Ensure that you have enough cash to meet your fundamental needs.

Given that Ray Dalio is a billionaire who has built the world’s largest hedge fund from the ground up, you might not expect that his number one tip for readers of a multinational financial news site would be to focus on essentials like housing, food and healthcare. But as Business Insider tells us, Dalio asserts that building a sufficient cash cushion is  key to enjoying a high quality of life with reduced levels of stress. Dalio advises reviewing your income, expenses, and savings, and putting them to a “stress test” to determine how long you could live reasonably if you lost your income. 

In general, financial advisors recommend that households build enough cash reserves to cover three to six months’ worth of living expenses. A simple way to start growing your emergency fund is to set up regular automatic transfers from your checking account to a savings or money market account. Another is to have a portion of your paycheck deposited directly into one of these savings instruments. What is essential is to save the funds in an account that is relatively accessible but separate from the one you use for daily purchases and paying bills. 

Building a heathy level of savings can provide peace of mind from unanticipated events or expenses such as a job loss, major illness, or costly home or auto repairs. With this safety net, you’re more likely to avoid potential financial setbacks that might otherwise occur in these situations, such as a hit to your credit score, the risk of defaulting on a mortgage or auto loan, or escalating credit card debt.

Do not let debt weigh you down. Take a close look at your spending habits and create measurable goals to tackle high-interest debt.

Entrepreneur Les Rubin, who founded Main Street Economics, refers to the escalating U.S. debt as one of the “greatest Ponzi schemes in the world.” As Business Insider points out, Rubin warns that debt levels are an incubator for a host of major problems including inflation, a lower quality of life for Americans, and potentially destabilization of the economy if investors lose faith in the system.

On a personal level, spiraling debt can threaten your financial health and security, as well as your ability to reach important life aspirations. If you have accumulated excessive high-interest debt, particularly on credit cards, one of the best ways to improve your financial outlook is to focus on paying it down.

Interest on credit cards typically compounds daily and at substantially higher interest rates than might get from other types of loans, such as a car loan, mortgage, or personal loan. When you pay only the minimum due each month, a large portion of your payment covers the interest you have accrued, with only a fraction of it applied to your principal. This keeps you in debt longer as you rack up higher interest charges. 

In addition, carrying a balance from month to month can hurt your credit score because it increases your credit utilization —the percentage of your available credit that you’re using. In general, a credit utilization ratio that exceeds 30% can have a significantly negative impact on your credit. The lower your balance is relative to your limits, the better for your score (aim to get it below 10% for exceptional credit). 

Getting out of the debt spiral frees up money that can be used to build your savings, make investments, or purchase assets that can provide income and/or increase in value. What’s more, paying down your balances may improve your credit score significantly — potentially give you access to the low-cost loans that make goals like buying a home more affordable. 

When it comes to eliminating credit card debt, a highly effective strategy is to focus on paying down your highest-interest credit card first in what’s often referred to as the “debt avalanche” approach. While the debt avalanche can save you the most money, some people find the “debt snowball” method more motivating. With this plan, you pay off debts in order from smallest to largest, which can provide a quicker psychological boost to give you momentum.

Look for new revenue streams that can supplement your main source of income.

A slight softening of the job market is forecasted for 2025, with about 130,000 jobs a month projected to be added to the U.S. economy, according to the forecasting of Jennifer Rice, a senior lecturer of business economics and public policy at Kelley School of Business (source: The Republic). This would put the unemployment rate at about 4.6%, an estimate that is not cause for alarm as it is clearly still historically low. 

However, global tensions, potential policies of a new federal administration, and political divisions can be difficult to quantify when it comes to impact on the job market. For those in a less stable occupation or field, it might be worthwhile to investigate additional ways to make money outside of your primary source of income. As The Personal Finance Podcast explains, this might be a side hustle, in which you essentially trade your time for money by taking on additional tasks. Examples of these could be pet sitting, freelancing in an area of expertise, or selling goods or services through an online marketplace such as Poshmark, TaskRabbit, or Fiverr. But it could also mean finding a passive income stream, such as money you receive from rental property, peer-to-peer lending, book royalties, or investment income. The goal is to have multiple sources to sustain you in case your main livelihood takes a hit.

If you are thinking about getting into the real estate market, 2025 may be an excellent time to make your move.

Buying a home continues to be one of the best ways to build wealth in this country, enabling you to grow your net worth through home equity as well as your property’s increase in value over time. In addition, home ownership can provide significant tax benefits and long-term stability in the face of rent increases. However, a shortage of homes, wavering interest rates, and economic uncertainty have created significant challenges for the housing market and buyers in recent years.

But as real estate investor Marco Santarelli tells us, NAR Chief Economist Lawrence Yun is cautiously optimistic on the outlook for the near term. Yun is anticipating a steady recovery for the U.S. housing market over the next two years — forecasting a 9% increase in home sales in 2025 and a 13% increase in 2026.  These projections are supported by job growth, stabilizing mortgage rates (hovering around 6%), and elevated levels of household equity.

With builders increasing production to meet demand, a gradual increase in the supply of homes may be forthcoming in 2025. Higher inventory levels may help to create a more balanced picture among buyers and sellers— potentially offering more attractive prices for challenged buyers that had previously found themselves priced out of competitive housing markets. 

If you are on the fence about whether to get into the real estate game or continue renting in 2025, Larence Yun’s analysis on the wealth gap between homeowners and renters might be worth considering. According to Marco Santarelli, the economist puts the national median net worth for homeowners at about $415,000, while renters fall behind at only $10,000.

Ensure that your portfolio is diversified but do not stop investing just because of market turbulence.

A recurrent theme echoed among financial experts and investment insiders for 2025 is to diversify your investments across different asset classes. Having a well-rounded, diversified portfolio is a sound investment strategy in any given year, and it offers important protection against market volatility. 

According to The Personal Finance Podcast, Ray Dalio points to the advantages of including gold and inflation-indexed bonds as diversifiers to protect against economic uncertainties and inflation. And while he views cryptocurrencies as having significant drawbacks (e.g., they can be volatile as part of a much smaller market), Dalio is not entirely opposed to alternative investments like bitcoin as part of a diversified portfolio.

In an August 2024 webinar, Stash co-founder Brandon Krieg cautioned against overexposure to one company. He advised users of the Stash platform who are investing for the long term to spread out their risks, typically by including in their portfolios a mix of U.S. and international companies, bonds, and cash equivalents.

Krieg acknowledged that markets can be erratic and driven by fear but emphasized that long-term investors should mostly ignore the details of daily market movements and simply let their money grow through compound earning over time. He points out that consistently investing in the market over a long-time horizon has continually been demonstrated to be a winning strategy. 

As we turn the corner on 2024, the beginning of a new year is an opportune time to review your investment portfolio and financial planning goals with a qualified investment advisor. Be aware that market unpredictability can potentially cause investment allocations in your portfolio to become unbalanced. Consulting with a trusted financial advisor can help to provide guidance and ensure you stay on track.

Through The Police Credit Union’s partnership with LPL Financial (LPL), we offer comprehensive Wealth Management services, from portfolio assessment and retirement planning to long-term care strategies. Our financial advisors can create an investment strategy tailored to you and provide an ongoing review of your portfolio to ensure that it remains aligned with your aspirations and needs. Learn more at our Wealth Management webpage here.