Are you wondering what to expect on the personal finance front in 2025?
From inflation trends to interest rate projections, here’s what experts are predicting.
1. Interest Rates Will Remain ‘Higher for Longer’
The Federal Open Market Committee (FOMC) made three long-awaited cuts to the federal funds rate toward the end of last year. But what’s next?
“The Fed is signaling ‘higher for longer’ and, for once, the market seems to agree. Futures are predicting only one to two rate cuts in 2025, down significantly from expectations in 2024,” Chad Bollinger, chief financial officer of the Credit Union of Colorado, said in an email.
He explained that while depositors are happy to continue earning higher returns, borrowers aren’t going to experience much of the relief they’ve been hoping for since the Fed began raising rates in early 2022.
2. Inflation Won’t Budge Much
Inflation trended down throughout most of 2024 but began to rise again after the Fed rate decreases began.
“On the inflation front, 2025 is likely to be another bumpy year with even slower progress toward the Fed’s 2.0% goal,” Sophia Kearney-Lederman, senior economist at FHN Financial in New York City, said in an email.
She explained that the November Personal Consumption Expenditures inflation data – both headline and core – saw the smallest monthly gain since last spring, but the annual rate for both ticked higher
“There could be some positive base effects for inflation in Q1 of this year because inflation was so bad in Q1 2024, but beyond that, we see inflation, particularly core, staying elevated close to or a bit higher than its current rate of 2.8%,” Kearney-Lederman said.
Bollinger’s prediction was similar. “Core inflation (which excludes food and energy) is 2.8% and is not likely to decrease meaningfully in 2025. The new administration’s plans, including potential tariffs, are a major wildcard for the inflation outlook. I don’t expect the focus on inflation to subside much in 2025,” he said.
3. The Housing Market Will Remain in a Gridlock
Many are waiting for the housing market to improve, but 2025 might not be the year.
“Housing costs are likely to remain a stubborn piece of the inflation puzzle in 2025. Much like 2024, the housing market is expected to remain subdued as mortgage rate lock and low inventory keep prices elevated, a contributing factor to rental price pressure, as well,” Kearney-Lederman said.
As of December 2024, the U.S. housing inventory sat at 871,509 active listings, compared to more than 1 million in the years leading up to the pandemic.
Bollinger explained that current mortgage rates are around 7%, but 75% of homeowners have mortgage rates under 4.5%, which has created a ‘golden handcuff’ quandary.”
“Most are choosing to stay put so the number of houses available for purchase remains low. With mortgage rates projected to stay elevated, I anticipate another year of below-average sales. Prices, though, should continue their steady upward trend due to continued supply shortages,” Bollinger said.
4. Tax Cuts Will Get Extended
During President Trump’s first term, he passed the Tax Cuts and Jobs Act (TCJA), which overhauled our tax code.
“This change lowered taxes for the vast majority of Americans. However, these tax cuts are set to expire at the end of 2025,” William Angelo Jr., a certified public accountant at Angelo and Associates in Clark, New Jersey, said in an email.
Angelo Jr. predicts President Donald Trump will either propose extending the TCJA cuts or make them permanent. “Without an extension of the TCJA, American families will face a tax increase – a dangerous combination when paired with the rapid inflation we’ve experienced in recent years,” he said.
The Bottom Line on Personal Finance for 2025
With Trump coming into office and planning a variety of policy changes, we could be in for some surprises in 2025. However, experts predict we won’t see much movement in interest rates, inflation or the housing market.
