Readers predict softer growth, stubborn inflation

• In the Axios Macro consensus, inflation remains elevated even as the economy softens, constraining the Federal Reserve's ability to cut interest rates.
• You continued to see a recession as unlikely but bumped up the odds one will start in 2025 to 35%, from a 25% median response last year.

By the numbers: The median respondent put the unemployment rate at the end of next year at 4.6%. That would be a meaningful rise from 4.2% last month and a continuation of the gradual move upward in joblessness that has occurred since 2023.

• You also saw a further downshift in payroll growth, to 150,000 jobs a month, from 185,000 so far this year.
• The median forecast was for GDP to rise 2.3%, also a move lower from the 2.7% for the equivalent period over the last year.
• However, you saw inflation moving up, with a median expectation of a 3.1% rise in the Consumer Price Index next year, from its current 2.7% reading.

Between the lines: You would expect a softer labor market to translate into falling inflation pressure. The median Macro reader saw the opposite, which may be due to the expected onset of tariffs.

• The median respondent predicted President-elect Trump will follow through on his campaign promise of enacting 10% across-the-board tariffs.
• Two-thirds of you anticipated that Trump will implement some across-the-board tariff, with 39% of you seeing him going even higher than 10%.

The intrigue: That may explain why you see basically no further Fed rate cuts next year, in contrast to Fed officials themselves who see two more rate cuts on the way.

• The median respondent sees the Fed's target interest rate coming in at 4.25% at the end of 2025, which is the low end of its current target range.
• The 10-year Treasury yield, which the Fed doesn't directly control, will also be little changed over the next year, per your median projection, which puts it at 4.4% (it was 4.51% Friday morning).
• Neither of those numbers suggests particular alarm about Trump's fiscal policies fueling higher interest rates.

Our favorite prediction in last year's reader survey was that 2024 would bring a shocker: a Taylor Swift-Beyoncé mega-concert that would single-handedly boost the economy.

• The concert didn't happen, sadly, but we avoided recession anyway.

As for 2025, many of you expect surprises in key areas: White House policy, what happens with the Fed and inflation, and AI.

One Macro reader, Chad C., expects Trump will have "very little effect on the economy in his first year."

• Another reader said the 2025 surprise will be Trump backtracking on campaign promises, like mass deportations, "after realizing the cost and economic impact it would bring." Many of you expect higher inflation and softer job conditions as a result of a trade war.
• One reader says Trump will attempt to fire Fed chair Jerome Powell "or somehow change the FOMC," referring to the Fed rate-setting committee. Another reader says Powell will go back on his promise to finish out his term.

Government debt and deficits are top of mind for you in 2025. Some readers anticipate the return of "bond vigilantes," or as one respondent put it: a "big sell-off in Treasury bonds on rising deficit and debt fears."

• Some are skeptical about how much Musk's Department of Government Efficiency initiative will ultimately accomplish. Others are confident it will slash $2 trillion in government spending.
• Separately, one reader expects a "major overhaul of entitlement programs." One of you expects cuts to Social Security; another says Social Security benefits will be expanded.

On AI, one reader says the "AI bubble will burst," while another says AI "inaccuracies and errors" will slow its progress.

• But Marius S. said AI will redefine the labor market next year, "creating demand for a new wave of high-value roles."
• Other readers expect the AI-driven productivity boom to play out next year.

The bottom line: No one knows how the economy will shake out next year, but one reader bets the biggest surprise "will be the lack of surprise.