U.S. economists raise GDP growth forecast for third quarter- survey

Economists have raised their U.S. GDP growth forecasts for 2025, with the median estimate for Q3 2025 now at 1.6% (up from 1.1%) and the full-year 2025 forecast at 1.7% (up from 1.6%), while 2025 CPI expectations remain stable at 2.8%. This follows an upward revision of Q2 2024 GDP to an annualized 3.8%, reflecting robust household spending and business investment. Despite this recent strength, analysts caution that rising tariffs and policy uncertainty are expected to temper growth in the latter half of 2024, with the Federal Reserve's upper-bound target rate still projected to reach 3.25% by the end of 2026.

Analysis

Economists have upwardly revised their forecasts for U.S. economic growth, signaling increased optimism for 2025. According to a recent Bloomberg survey, the median estimate for Q3 2025 GDP growth was raised to a 1.6% quarter-on-quarter annual pace from 1.1%, while the full-year 2025 forecast edged up to 1.7% from 1.6%. This improved outlook follows a stronger-than-expected Q2 2024 performance, where GDP was revised up to a 3.8% annualized rate, driven by resilient household spending and a narrower trade deficit. Despite this recent strength, the report strikes a cautious tone. The full-year 2024 GDP growth estimate remains unchanged at 2.8% due to downward revisions in other quarters, and analysts warn that headwinds from rising tariffs and policy uncertainty are likely to temper growth in the second half of the year. Importantly, inflation expectations for 2025 remain stable, with the CPI forecast holding at 2.8%, suggesting the upgraded growth outlook is not seen as inflationary. The consensus for monetary policy also remains unchanged, with economists still projecting the Federal Reserve's upper-bound target rate will fall to 3.25% by the end of 2026 from its current 4.25%, indicating a continued expectation of policy easing.

Key Decisions for Investors

• Consider the upgraded 2025 GDP forecasts as a supportive factor for equities, as the combination of stronger growth and stable inflation expectations reinforces the 'soft landing' narrative.
• Investors should closely monitor near-term risks from rising tariffs and policy uncertainty, which are expected to temper growth in late 2024 and could introduce volatility, particularly in trade-sensitive sectors.
• The persistent expectation for the Fed to cut its target rate to 3.25% by the end of 2026 remains a key tailwind, suggesting that market dips caused by near-term headwinds could present buying opportunities for those with a longer-term horizon.