2025 Economic Forecast
By Dr. Michael L. Walden, Ph.D
William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University
Growth in the economy continued in 2024. Part of the reason was a change in policy from the nation’s central bank – the Federal Reserve (the “Fed”). As the inflation rate started surging in 2021, beginning in early 2022 the Fed used its powers to raise interest rates in order to moderate spending, thereby taking pressure off prices. The Fed saw the annual inflation rate drop to the low 2% range in late-2024 from the over 9% rate in mid-2022. The Fed took this news as evidence their policy had succeeded, thereby allowing them to ease up on the economic brake. The Fed made two rate cuts in late 2024, reducing their key interest rate by over one percentage point.
Even before the rate cuts, the national economy was growing, and at the end of the year, 2024 will be judged as another positive year. Economic production increased and jobs were added. Paychecks rose at rates faster than prices, thereby allowing households to make gains in their purchasing power. While jobs were higher than in 2023, the pace of the gains slowed, resulting in a slighter higher jobless rate. At the end of 2024, the national jobless rate stood at 4.1%, higher than the 3.7% rate in 2023.
The Fed’s reduction in their key interest rate was heralded by households hoping interest rates on loans would drop. While many interest rates have dropped slightly, such as for credit cards, long-term mortgage rates rose at the end of 2024. The reason – continued large borrowing by the federal government. Understandably, federal borrowing jumped during the pandemic as the federal government pumped trillions of dollars into the economy to help households and businesses survive the shutdowns. While current borrowing is below the pandemic years, federal borrowing has not returned to pre-pandemic levels. Hence, the federal government is increasingly competing with private borrowers for loanable funds. Such a situation pushes interest rates, especially long-term interest rates, higher.
The forecast for the nation’s economy in 2025 is still positive, but with some uncertainty. Production, employment, consumer spending, and business investment are all expected to increase. The new Presidential administration has discussed ideas for tax cuts and also for targeted increased domestic spending. If the increased spending is not balanced by reductions in other parts of the federal budget, increased federal borrowing would occur, which could push interest rates higher. Also, if new tariffs on foreign imports are implemented, the likely consequence would be higher prices for those imports, which could stall or reverse the progress on inflation. This might result in a slower growing economy at the end of 2025, maybe even leading to a higher jobless rate.
While household purchasing power in 2025 should return to levels of four years ago, rising consumer debt and debt delinquencies deserve watching. Although not near record levels, debt and delinquencies have been consistently climbing, leading to challenges for households’ finances.
Turning to North Carolina, the State’s economy continues to outpace the national economy. The latest available data show the growth rate of aggregate economic production in 2024 in N.C. was almost 50% faster than in the nation. The State’s jobless rate has also been consistently under the national rate. While some projections of the State’s future economic growth suggest a modest slowdown, all signs point to a robust and expanding economy. The State continues to rank high on net in-migration, a measure of households moving to the State from other states. One of the biggest challenges for the State in 2025 will be the rebuilding of areas in western N.C. that were devastated by Hurricane Helene.
N.C. has been making progress on geographically “spreading the wealth.” In the 21st century, most economic gains were in the big metropolitan areas like the Triangle and Greater Charlotte. But since the pandemic, major business announcements have been made for smaller regions, such as Rocky Mount, Wilson, Hickory, and Chatham, Gaston, and Brunswick Counties. Within the Triangle region, Johnston County is on the verge of becoming a “second RTP” with numerous pharmaceutical firms expanding there.
Wake County continues to grow as a core county in the nationally recognized “Triangle Region.” Although final numbers are not yet available, the growth rates in metrics like population, employment, and building permits may be lower in 2024 compared to 2023. Still, Wake County continues to carry enormous economic advantages, including a lower-cost-of-living than the nation and numerous metro areas, first-class educational institutions, space for development, a pleasant climate, and an improving transportation system. I-440, is being expanded in several locations, and, I-540, is approaching completion.
In conclusion, 2025 should be another growth year for the nation, North Carolina, and Wake County. However, with a new national Administration and likely new economic policies, the advice to “watch and evaluate” is important to apply all year long.
Walden is a Reynolds Distinguished Professor Emeritus at North Carolina State University and President of Walden Economic Consulting. Among his numerous awards is the Order of the Long Leaf Pine. The author of 15 books, he is working on a new book about the future North Carolina economy for the UNC Press.
This content first appeared in Economy & Business 2025. Click here to view the entire publication.
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