S&P Global U.S. Forecast Update May 2025

May 9, 2025

By Delaney O’Kray-Murphy, EBRC Research Economist

Adjusting to a high effective tariff rate

S&P Global have released their May 2025 forecast update for the U.S. The current forecast is based on the following assumptions:

This forecast incorporates the existing Section 232 tariffs, along with newly proposed Section 232 tariffs, ranging from 10% to 25%, on copper, lumber, semiconductors, pharmaceuticals, and critical minerals, effective in Q4 2025. We also assume International Emergency Economic Powers Act (IEEPA) tariffs tied to fentanyl flows and immigration, including a 20% tariff on imports from China and 25% tariffs on imports from Canada and Mexico, which step down to 12% by early 2026. Additionally, we assume a 10% universal "reciprocal" tariff on all imports from outside North America, except China, where the current 125% tariff rate gradually declines to 17% by late 2025.
Deportations combined with a sharply reduced inflow of immigrants will reduce U.S. aggregate supply and aggregate demand. This forecast assumes net international migration will be reduced, relative to Census projections, by about 500,000 per year during the four years of the Trump presidency.
The Fiscal Responsibility Act, which suspended the debt-limit, ended on Jan. 1, 2025, and the Treasury has undertaken “extraordinary measures” to meet its obligations. The debt ceiling is assumed raised or suspended prior to the exhaustion of these measures. S&P Global assumes a cumulative 255,000 federal layoffs through August 2025.
Personal income tax cuts related to the 2017 TCJA are extended. Some exclusion of tip and overtime pay from federal taxation is assumed to be adopted. Corporate tax policy now assumes a lower corporate tax rate on corporate income from 21% to 15% for corporations that produce domestically. Scheduled Social Security and Medicare benefits are paid beyond the projected exhaustion of those funds.
After cutting rates by 100 basis points (bps) in 2024, the Fed cuts once at the end of 2025, during the December meeting. Thereafter, the FOMC cuts by 25 bps at three consecutive meetings through March 2026 before slowing to the pace of every other meeting, bringing the funds rate to 2.75-3.00%. The Fed then raises rates once back to a neutral rate of 3.00-3.25% in late 2028.
Real foreign GDP rose 2.0% in 2024. The forecast calls for growth to slow to 1.6% in 2025 before rising to 1.9% in 2026.
The price of Brent crude oil rose to $113 per barrel in the second quarter of 2022, up from $80 per barrel in the fourth quarter of 2021. The price is forecast to drop to $68 per barrel in 2025 and $66 in 2026 before gradually rising at the rate of inflation.

The baseline forecast (summarized here) is assigned a 50% probability. The pessimistic scenario is assigned 35%, and the optimistic scenario is assigned the remaining 15%. These probabilities are unchanged from last month’s forecast.

After increasing by 2.9% in 2023 and 2.8% in 2024, the baseline forecast calls for real GDP growth to drop to 1.3% in 2025 and 1.7% in 2026. On a quarterly basis, the forecast calls for real GDP to increase through 2035 (no recession).

Headline inflation spiked in 2022 to 8.0%, then decelerated to 4.1% in 2023 and 3.0% in 2024. It is forecast to rise to 3.4% in 2025, as tariffs and other policies take effect, then fall to 2.9% in 2026 and 2.2% in 2027.

The unemployment rate peaked at 8.1% in 2020 but fell to 5.4% in 2021 and again to 3.6% in 2022. It remained at 3.6% in 2023 and rose to 4.0% in 2024. Unemployment is forecast to rise to 4.4% in 2025 and 4.9% in 2026, then peak in 2027 at 5.0% before gradually declining.

Nonfarm payroll jobs nationally dropped by 5.8% in 2020 but rebounded with growth of 2.9% in 2021 and 4.3% in 2022. Jobs rose by 2.2% in 2023 and slowed to 1.3% in 2024. Job growth is forecast to slow further to 1.0% in 2025 and 0.2% in 2026 and 2027.

Housing starts surged in 2021 to 1.61 million units. Activity remained strong in 2022 at 1.55 million. Starts fell to 1.42 million in 2023 and 1.37 million in 2024. They are forecast to rise to 1.38 million in 2025 and drop to 1.34 million in 2026, as high interest rates and inflation take a toll on housing activity.

Exhibit 1 summarizes the May 2025 forecast from S&P Global. Exhibit 2 shows the April 2025 projections and Exhibit 3 shows the difference.