Financial Trends for 2025

1. The Fed May Hold Off on More Rate Cuts

After more than a year of maintaining high interest rates, the Federal Reserve cut its federal funds rate by 100 basis points in late 2024, down to a range of 4.25% to 4.5%. According to CME FedWatch, which tracks the probability of Fed rate changes, though, the federal agency may not cut rates again in 2025. At the time of writing, the most likely outcome for next year's December meeting is the current range.

The federal funds rate is designed to help manage consumer spending, which is a major factor in economic growth. When the rate is high, the prime rate, which lenders use to determine interest rates on various consumer loans and credit cards, follows suit.

As a result, credit card interest rates reached a record high in the third quarter of 2024, with an average of 23.37%. As the Federal Reserve lowers its rate, though, consumers may get some relief.

2. Inflation Should Continue to Ease, Albeit Slowly

While news publications focus heavily on the consumer price index (CPI) for inflation trends, the Federal Reserve prefers the Personal Consumption Expenditures (PCE) index for its greater adaptability to spending patterns.

According to the Bureau of Economic Analysis, which tracks the PCE index, the inflation rate was 2.3% in October 2024, which is close to the federal agency's target of 2% but up from 2.1% the previous month. However, the core PCE index, which excludes volatile food and energy costs, hit 2.8%, meaning that many prices continue to resist the downward trend.

The CPI, which provides better annual data for grocery prices, shows that grocery prices were up just 1.1% in October 2024, a significant plus for one of the largest monthly expenses for many households. Additionally, gas prices were down 12.2%.

According to economic experts, inflation will keep its downward momentum in 2025, though there may be some bumps along the way.

Learn more >> Ways to Fight Inflation and Save Money Now

3. Household Debt May Be a Test for Consumers

Household debt soared to an all-time high of $17.94 trillion in the third quarter of 2024, according to data from the Federal Reserve Bank of New York.

What's more, delinquency rates for credit cards and auto loans have exceeded pre-pandemic levels, creating concern for some experts. Analysts from Deloitte, for instance, anticipate that consumer debt—along with declining savings—could weigh heavily enough for Americans to pull back on spending.

The silver lining is that income growth has outpaced debt balances. Additionally, decreasing interest rates may help temper further debt growth, particularly among credit card users.

Learn more >> Steps to Get Out of Debt

4. The Housing Market Likely to Remain in Flux

The past few years have been tumultuous for the housing market, with runaway price increases, sky-high interest rates and plummeting inventory. While experts anticipate some of those issues to moderate somewhat, don't expect a buyer's market.

Home Prices

Home prices rose by 3.4% year over year in October 2024, according to data from CoreLogic. Looking forward to next October, however, the research firm anticipates growth at a slower clip of 2.4%.

Inventory

Housing inventory is on its way to returning to pre-pandemic levels, but there's still a long way to go. According to the Federal Reserve Bank of St. Louis, the number of active listings nationwide in October 2024 was still roughly 21% below the figure for October 2019.

Unfortunately, new construction may not quite return to positive growth in 2025, hampering the market's return to its former glory.

Interest Rates

Persistently high mortgage rates have frustrated prospective homebuyers and existing homeowners looking to refinance. While the inflation rate has come down, the 10-year Treasury yield—a widely used benchmark for mortgage interest rates—remains high.

According to Freddie Mac, the average rate for a 30-year mortgage sat at 6.81% at the end of November 2024. That rate will likely slide throughout 2025, though at a snail's pace, with many experts forecasting average rates near 6% by the end of the year.

Learn more >> Should I Buy a House When Rates Are High?

5. Markets on Track to Enjoy Another Strong Year

In spite of incessant uncertainty in the economy, investment analysts from most major banks expect another year of strong returns in the stock market.

The S&P 500, a stock market index widely used as a benchmark for the stock market as a whole, hovered slightly above 6,000 points to start December 2024, representing a blistering 27% increase year to date. In 2025, experts from major banks forecast the index may reach anywhere from 6,500 to 7,000, resulting in an annual return of roughly 8% to 17%.

That said, the stock market can be incredibly volatile in the short term, and your actual results will depend on your portfolio holdings and several other variables.

6. Unemployment Set to Tick Up Slightly

The unemployment rate in the U.S. reached a five-decade low of 3.4% in early 2023, but it's steadily increased since then, reaching 4.1% in October 2024.

Experts anticipate that jobless rates will continue to climb in 2025, but only slightly, ending the year at 4.4%. Economists from the University of Michigan expect the economy to hit that rate in early 2025 and then remain steady for the remainder of the year.

According to experts, that's within the range for a healthy economy. However, a low unemployment rate could also make it more challenging for job seekers to find positions that match their experience and skill sets.

7. Student Loan Borrowers May Have Fewer Relief Options

As President Biden prepares to leave the White House, a handful of his student loan forgiveness proposals may go along with him.

For example, the SAVE plan, which was designed to minimize monthly payments and provide interest relief and an accelerated forgiveness timeline for eligible borrowers, is expected to be struck down by the 8th Circuit Court of Appeals or the incoming Trump administration, leaving 8 million borrowers in the lurch.

It's also unlikely that the new administration's Department of Education will continue to pursue other forgiveness initiatives already begun, such as a hardship-based program.

As a result, some borrowers may see higher monthly payments in 2025 and less generous forgiveness options.

How to Improve Your Finances in 2025

Whether you're still working on your financial resolutions for 2025 or you're just trying to get by, here are some steps you can take to improve your financial situation through the rest of the year:

• Start a budget. If you don't already have one, now is an excellent time to make a budget for your monthly expenses. You can start by looking at your income and expenses over the past few months to get an idea of whether you're living within your means. You can also categorize your expenses for a more detailed view of where your money is going. Then, evaluate different budgeting plans to determine which one's best for you.
• Take advantage of high savings rates. While interest rates on savings products are expected to come down along with the federal funds rate, take advantage of elevated rates while you still can. Take some time to learn more about and compare high-yield savings accounts and certificates of deposit to determine the best path for you.
• Check your credit. Your credit score is a crucial component of a financial plan, especially when it comes to qualifying for low interest rates. Check your FICO^® Score^☉ and Experian credit report for free to get an idea of where you stand and identify different steps you can take to improve your credit.
• Tackle high-interest debt. Debt payments can put a strain on your budget, especially if it's high-interest credit card debt. If you're carrying a balance on one or more credit cards, evaluate your debt situation and develop a strategy to pay down your credit card debt as quickly as possible to give yourself some more breathing room.
• Evaluate your investment strategy. If you have a retirement plan or other long-term investment strategy, evaluate your current approach and consider adjustments as needed. This may include raising or lowering how much you're investing, adjusting your portfolio's holdings to align better with your goals or working with a financial advisor to get some expert personalized guidance.

Ultimately, the steps you take to improve your finances this year will depend on your current situation and your financial goals. As you consider these and other steps, focus on what makes the most sense for you.

The Bottom Line

Consumers may get a little financial relief next year in the form of lower interest rates and a lower inflation rate. Investors may also enjoy another good year in the market. However, the economy isn't quite out of the woods yet, and some Americans will still feel the pressure of high mortgage rates and consumer debt.

Although there are several factors that impact your finances that are outside of your control, keeping up with financial trends can help you plan for the future and make smart financial decisions to make the most of what you have.