Chief Economists Outlook May 2025

12Chief Economists Outlook At the beginning of 2025, expectations for the US economy were optimistic12 but the unexpected extent of the policy changes that were announced in April has clouded the outlook. Responding before the announcement of the pause in US-China tariffs, almost four out of five of the chief economists said they anticipated weak (69%) or very weak (8%) growth for the remainder of the year. This is a significant softening compared to January’s edition, when the expectation was for moderate (47%) or strong (44%) growth. According to early official estimates, in the first quarter, real GDP decreased at an annual rate of 0.3%.13 While this headline figure masks strong domestic demand and includes a rise in imports as a reaction to expected tariffs, more timely indicators point to the beginning of a slowdown. At the end of April, US business activity growth was at a 16-month low and business expectations for the year ahead had dropped sharply.14 Consumer sentiment had also plunged,15 and the unusual combination of rising bond yields and a weakening dollar pointed to investor nervousness.16 At the time of writing, there has been a clearly positive market response to the announcement of the US-China tariff pause.17 Figure 8. US dollar outlook Looking ahead to the remainder of 2025, do you agree/disagree with the following? Strongly disagree Disagree Uncertain Agree Strongly agree The dollar will weaken 11 13 63 13 Share of respondents (%) Source: Chief Economists Survey. (2025, April). Just over three-quarters (76%) of chief economists surveyed also expected the dollar to weaken further over the remainder of 2025. If this occurred, it would add to inflationary pressures, and 79% of respondents were anticipating high inflation this year, up from just 15% in the previous edition. According to a closely watched indicator, inflation expectations in the US have already risen sharply, with year- ahead inflation now projected at 7.3%, the highest level since 1981, and long-term expectations up to 4.6%.18 However, this contrasts with a dip in the headline rate of inflation to 2.3% in April.19 The outlook for price stability may improve if current tariff pauses are extended, although the impact of the higher-than-norm “pause rates” is yet to be fully factored in.20 Against a backdrop of slowing growth, recent inflation dynamics have been making the Federal Reserve’s policy decisions more complex. In the latest survey, half of respondents expected a shift towards looser monetary policy. 12 International Monetary Fund (IMF). (2025a). 13 Bureau of Economic Analysis. (2025). 14 S&P Global. (2025a). 15 University of Michigan. (2025). 16 The Economist. (2025d).17 Sandlund, W. et al. (2025) 18 University of Michigan. (2025). 19 Bureau of Labor Statistics. (2025a). 20 The Economist. (2025e).