Monthly Economic Insights
Mid-year reality check: Inflation stabilizes, Fed holds for now
June 2025
The U.S. economy continues to send mixed signals as it enters the second half of 2025. While inflation is trending in the right direction, growth is slowing, the labor market is softening, and unsettled tariff policies continue to stoke uncertainty for business leaders and consumers alike.
Inflation data for May shows headline consumer prices up 2.4% year-over-year, holding fairly steady from April. Core inflation, which excludes volatile food and energy prices, remains at 2.8%, its lowest level in over three years.
While these figures suggest inflation is continuing to cool, it’s not enough to signal “all clear” for policymakers. Fuel costs are easing (but Mideast tensions could quickly change that), and grocery prices ticked slightly higher. New import tariffs—10% on average—are expected to reverse some of this progress, putting upward pressure on prices in the coming months.
In response, the Federal Reserve has maintained its cautious stance, leaving rates unchanged at 4.25% to 4.50%. The Fed’s latest projections include two quarter-point cuts later this year, with one coming as soon as July during the next Board meeting. The market is currently pricing in 18% odds of a cut in July and 78% odds of a cut in September.
Chair Jerome Powell acknowledged that “unusual uncertainty” around trade policy, global markets, and consumer behavior complicates the path forward. For businesses and consumers, this means borrowing costs may remain elevated a bit longer than hoped.
The labor market is also showing signs of cooling. The economy added 139,000 jobs in May, slightly down from April’s revised figure. The unemployment rate held steady at 4.2%, but wage growth, up 3.9% year-over-year, continues to outpace inflation, offering positive support for U.S. households.
Meanwhile, economic growth has slowed. The first quarter of 2025 saw a contraction in GDP for the first time in three years. While inventories and exports masked some underlying demand weakness, the broader trend points toward slower momentum.
The Fed now predicts just 1.4% GDP growth for the year. This is a downward revision from its previous estimate of 1.7%.
The implications for business owners and commercial banking clients are clear: margin pressure may increase, hiring may become more selective, and investment decisions could face new delays.
Rising tariffs and global uncertainty are already prompting many companies to rethink supply chains, pricing strategies, and capital expenditures.
Bottom Line: There are still levers to restore stability. Easing trade tensions through revised agreements, exercising greater fiscal discipline, and implementing thoughtful, responsive monetary policy can help rebuild confidence.
In the meantime, innovative businesses are focusing on managing costs, maintaining access to credit, and investing in core strengths that will carry them through a slower period.
The Fed remains cautious, but the growing consensus is that current rates remain well above neutral and can be adjusted without jeopardizing price stability. Clarity and certainty continue to be elusive, while predictions for leading indicators remain neutral to positive for the second half of 2025.
— Marcus Scott, CFA, CFP®, Chief Investment Officer (CIO) for Country Club Trust Company
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