Payden & Rygel: Core inflation and unemployment in 2024 vs 2025 outlook

Payden & Rygel: Core inflation and unemployment in 2024 vs 2025 outlook

December 20, 2024

Inflation Outlook Labor force
Werkloosheid.jpg

Risk and reward have gone hand in hand all year. Year-to-date, the riskiest assets, U.S. equities and global equities, have returned 25% and 19% respectively, while U.S. high yield bonds returned 8.4%.

What explains the stellar year? Another year of good economic news. As Fed Chairman Jerome Powell remarked this week, 'The economy is strong overall and has made significant progress toward our goals over the past two years.'

Looking ahead, we find plausible a scenario in which the Fed's preferred inflation gauge, the core PCE price index, drifts back down to 2%. Meanwhile, the unemployment rate could edge higher, reaching 4.3% by year-end, which would still be quite low compared to the long-run average of 5.5%.

With that backdrop, we expect the Fed to continue to cut the fed funds rate to support the labor market as inflation fades, albeit at a slightly slower pace in 2025 compared to 2024. In turn, rate cuts for a still growing economy might bode well for the same risk assets next year, too.

Related posts