- Economists from 15 large North American banks were surveyed on inflation, rates, and the economy.
- They see 2% economic growth in 2025 as well as 2% inflation.
- Some Wall Street analysts have also weighed in on where they think the S&P 500 will be.
In addition to the economy, strategists offer their projections for the S&P 500.
Chief economists from 15 large North American banks expect the economy to continue to grow at a moderate pace and anticipate a soft economic landing, according to the American Bankers Association’s biannual survey of its Economic Advisory Committee.
The committee, which consists of chief economists from JPMorgan Chase, Morgan Stanley, Wells Fargo, M&T Bank, and US Bank, among others, also put forth estimates for inflation, interest rates, jobs, and the housing market.
In addition, stock market analysts call for muted growth for the S&P 500 over the next year.
2% Inflation by Q2 2025
The ABA’s survey revealed that the chief economists predict approximately 2% economic growth in the second half of 2024, as well as 2% growth for all of 2025. That would be slower growth than the 3% gross domestic product (GDP) growth we saw in the second quarter of 2024. However, it is in line with the Federal Open Market Committee’s (FOMC) projections for economic growth.
That would indicate that economists don’t expect a recession in 2025. They put the risk of recession in 2025 at 30% — the same as it was in the last survey in March.
Regarding inflation, the consensus among economists is that inflation, as measured by Personal Consumption Expenditures, will meet the Fed’s goal of 2% in the second quarter of 2025. This is a more optimistic view than the FOMC, which projected PCE inflation to hit 2% in 2026.
Further, the committee of chief economists see the unemployment rate, which is currently at 4.2%, peaking at 4.4% in the first half of 2025 and then declining to 4.3% by the end of 2025. This is down slightly from the Fed’s 4.4% unemployment rate projection for the end of 2025. It is also higher than the committee’s March estimate of the unemployment rate peaking at 4.1% in 2025.
“When it comes to hitting its dual mandate targets on employment and inflation, the Fed is close to ‘mission accomplished,’” said Luke Tilley, committee chair and chief economist at M&T Bank/Wilmington Trust. “At the same time, despite expectations for continued growth, the labor market has softened from historically tight levels. That is something that will need to be monitored going forward.”
With regard to interest rates, the committee expects the target federal funds rate to be another 150 basis points lower by the end of 2025, which would put rates in the 3.25% to 3.50% range in Q4 2025. This is roughly in line with the FOMC’s summary of projections.
“It’s the longer-term path that matters more, and our expectation is for the Fed’s policy rate – which is still restrictive – to reach a more neutral level by the end of next year,” said Tilley.
With rates coming down, the ABA committee sees housing prices begin to moderate, from 6.8% in the second quarter of 2024, to 3.1% growth by the fourth quarter of 2025. They say the lower mortgage rates will spur housing construction, with housing starts jumping from 1.34 million in the second quarter of 2024 to 1.45 million by Q4 2025.
S&P 500 at 6,000?
The ABA committee did not make any projections about where stocks are headed, as that is not their purview. However, there have been some updated projections for the stock market trickling out after the Fed lowered interest rates in September.
Most notably, David Kostin, the chief equity strategist at Goldman Sachs, recently told Bloomberg Television that he expects the S&P 500 to hit 6,000 in September 2025, which would indicate just 5% growth between now and then. Earlier this year, Goldman Sachs predicted the S&P 500 to be at 5,600 at the end of 2024.
The average target range among analysts tracked by Bloomberg put the S&P 500 at around 5,523 by the end of 2024, which would suggest a 3% drop between now and then.
Also, IG Markets recently polled Wall Street analysts and the consensus was for 9% growth in the S&P 500 over the next 12 months.
The elections should produce some volatility, but once the dust settles and a winner emerges, the markets should get a bump.
Look for more projections on the markets in the next month or so, when most Wall Street analysts come out with their outlooks for 2025.