Two the Point — Fed, Profits, and the 2025 Outlook

As we head into 2025, a combination of supportive policy and resilient consumer demand presents a promising landscape for continued economic and earnings growth. This outlook remains cautious yet optimistic, highlighting the ongoing potential for a soft-landing scenario.

Key Insights:

• Fed Policy Update: Last week, the Federal Reserve cut the federal funds rate by 25-basis points, totaling a 75-basis point reduction since September. This cautious approach aims to support steady economic growth without reigniting inflation.
• 2025 Earnings Growth: Corporate earnings are projected to accelerate to a robust double-digit growth rate next year, with all sectors contributing positively. Analysts have raised earnings expectations considering potential tax cuts and regulatory adjustments, with profit margins likely to reach new highs.
• Inflation Expectations: Inflation is now more likely to operate in a controlled 2-3% range rather than a strict 2% target, allowing businesses flexibility in pricing. This moderate inflation outlook is constructive for both equities and broader economic growth.
• Consumer Demand: U.S. consumer spending, fueled by a resilient labor market with unemployment steady at 4.1%, remains a cornerstone of economic strength, supporting GDP growth heading into the new year.
• Post-Election Policy Clarity: With election results settled, businesses have a clearer policy landscape, enabling them to follow through on capital investments.