An updated economic forecast: what to expect for the rest of 2025

Since the last forecast in April, a lot has changed in the economy. While tariffs have indeed gone up over the past few months, they haven't been as extreme as originally expected. It's also encouraging that the administration has shown flexibility, easing off when financial markets became shaky. Curt Long, Vice President of Data & Research and Deputy Chief Economist, shares an updated forecast for the rest of the year in the latest Economic Update. This looks at Q2 and how that can be a guide for what to expect for the rest of 2025. While this does not include the latest data that has come out so far in Q3, this is aligned with the overall estimate.

"Our forecast group now puts the odds of a recession by 2026 at 40 percent. That is down significantly from April, when we placed those odds at 60 percent. But it's still uncomfortably high and reflects that a rough patch could cause growth to dip below zero for an extended period."

Tariffs are high but not disastrous

As of early July, the average tariff rate is about 20 percent. That's the highest it's been in the U.S. since the 1930s. While that's a big number, the impact hasn't been as damaging as feared. Still, it's something to watch closely.

Consumers are spending less

An area of greater concern at the moment is how people are pulling back on spending, which is a major driver of the economy. When adjusted for inflation, spending did not grow at all in the first five months of the year.

The economy also shrank slightly in the first quarter of 2025. While that is not great news, it may have been caused by the uncertainty around trade policy. If that's the case, there could be a bit of a rebound in the second quarter.

Some reasons for optimism

A new law passed on July 4th includes tax cuts that should give many households more money to spend. Plus, the stock market is doing well, which tends to make people feel more confident about their finances.

Because of these factors, America's Credit Unions has lowered our estimate of the chance of a recession by 2026 from 60 percent to 40 percent. That's still a bit high, but it's a step in the right direction.

The job market is holding steady—but with some warning signs

Unemployment is holding around 4 percent, which is a good sign. But there are a few trends that could be concerning. Wages aren't growing as fast as they were, especially for younger workers. And people who lose their jobs are taking longer to find new ones. That said, fewer people are entering the workforce right now, which helps keep the unemployment rate stable.

Interest rates: Fewer cuts ahead

Because the economy is looking a bit stronger, there could be fewer interest rate cuts from the Federal Reserve. Tariffs could complicate things. Some of the added costs from tariffs are being passed on to consumers, especially in products like furniture and appliances. If prices rise too much, it could affect how the Fed handles interest rates.

What this means for credit unions

Credit unions are feeling the effects of all this. People aren't saving as much, and share growth (the amount of money members deposit) is lower than expected. With interest rates staying high, it is unlikely that savings will grow much faster anytime soon, as many consumers still choose higher-yield options like money market funds and online banks.

On the lending side, there's better news. Loan growth has been stronger than expected so far this year. One reason is that the housing market is showing signs of life. More homeowners are listing their properties, and more buyers are applying for mortgages. This suggests that the "lock-in effect"-where people with low mortgage rates were holding off on selling-is starting to fade. While home prices are no longer rising as quickly, they're also not expected to fall much, since fewer new homes are being built.

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