The Congressional Budget Office forecasts lower GDP growth for 2025 at 1.4%, down from a previous 1.9% due to tariffs and reduced immigration. For 2026, growth rebounds to 2.2% due to fiscal policies, before stabilising at 1.8% in 2027 and 2028, with a slight overall GDP increase by the end of 2028.<\/p>\n
Inflation is expected to reach 3.1% in 2025 due to tariffs, decrease to 2.4% in 2026 as these effects lessen, and hit the Federal Reserve’s target of 2.0% by 2027 and remain stable through 2028. The unemployment rate is projected to rise to 4.5% in 2025 but reduce to 4.2% in 2026 because of fiscal stimulus, and stay near 4.4% in 2027 and beyond.<\/p>\n
Interest rates begin at 4.5% in August 2025, with the Federal Reserve likely to reduce rates to a range of 3.5%-3.6% in 2026. The rates stabilise at 3.3% by 2027 and 2028, with a decrease in the 10-year Treasury from 4.3% in late 2025 to 3.9% by Q4 2028.<\/p>\n
The outlook for the rest of 2025 points to increased market choppiness. We are facing slower economic growth and stickier inflation, a combination that creates uncertainty for investors. This environment suggests positioning for higher volatility, perhaps through VIX derivatives, as the August CPI report released this week showed inflation is still running hot at 3.5%.<\/p>\n
We should reconsider expectations for aggressive, near-term Federal Reserve rate cuts. With inflation now forecast to end the year at 3.1%, the Fed’s path to easing is complicated, which could keep short-term rates elevated longer than previously anticipated. Derivative plays on the yield curve, such as those involving SOFR futures, should be structured to account for a slower start to the cutting cycle.<\/p>\n
The forecast of 1.4% GDP growth and a 4.5% unemployment rate suggests a challenging environment for corporate profits through the end of this year. This weaker demand warrants a more defensive or even bearish stance on major equity indices like the S&P 500. The last jobs report, which showed a cooling labor market and an unemployment rate that ticked up to 4.2%, supports this cautious view.<\/p>\n
This period feels similar to past cycles we have seen, where stubborn inflation forced the Fed to keep policy tighter despite a weakening economy. While a rebound is expected in 2026 due to fiscal stimulus, our immediate trading focus should be on the stagflationary pressures of the next few months. We should be cautious about positioning for that 2026 recovery too early.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" CBO projects slower 2025 growth from tariffs, with recovery and stable inflation expected through 2028.<\/p>\n","protected":false},"author":62,"featured_media":17026,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-30711","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/30711","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=30711"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/30711\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17026"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=30711"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=30711"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=30711"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}