The US economy performed better-than-expected in 2024, with the International Monetary Fund (IMF) upgrading its growth forecast for the region, and the resilience may persist in 2025 as the Federal Reserve unwinds its restrictive policy.

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IMF World Economic Outlook (October 2024)

According to the IMF, Advanced Economies are projected to grow 3.2% in 2025, with the US expected to expand 2.2%.

Source: IMF

Even though economic activity in the US is anticipated to slow in 2025, the IMF may continue to revise its growth forecast as the Federal Open Market Committee (FOMC) remains ‘committed to maintaining our economy’s strength by supporting maximum employment and returning inflation to our 2 percent goal.’

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In turn, the FOMC may further unwind its restrictive policy in an effort to prevent a recession, and the strength in the US economy may carry into 2025 amid the upward revisions in the Atlanta Fed’s GDPNow model.

Atlanta Fed GDPNow Model

Source: Atlanta Fed

According to the model, the ‘estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2024 is 3.2 percent on December 18, up from 3.1 percent on December 17.’

In response, the FOMC may continue to adjust the forward guidance for monetary policy as ‘recent indicators suggest economic activity has continued to expand at a solid pace,’ and the central bank may stay on track to implement less rate-cuts in 2025 as ‘the median participant projects that the appropriate level of the federal funds rate will be 3.9% at the end of next year’ instead of the 3.4% forecast at the September meeting.

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With that said, the stronger-than-expected US economy may continue to sway the Fed as Chairman Jerome Powell acknowledges that ‘it’s pretty clear we have avoided a recession.’

— Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong