December 30, 2024

Taylor St. Germain:
Hi everyone, my name is Taylor St. Germain with ITR Economics and welcome to this edition of TrendsTalk. We at ITR are a political and unbiased source of economic intelligence and today I wanted to talk about inflation, but taking a step back to look at long-term inflation and long-term interest rates.

If you’re curious about the recent Fed action that’s just happened here in the month of December, please head over to our FedWatch page to hear directly from our Chief Economist. Really what I want to focus on, the angle I want to take today is where are we going in the future and what does it mean in terms of preparing our businesses for future inflation and interest rates?

The reason I bring this up is because we at ITR believe your time to act and take advantage of lower rates and lower levels of inflation is really now and now over the course of the next 12 months also because we see higher rates and higher inflation and characterizing our lives here in the United States as we look deeper into the second half of this decade.

So let’s talk about that a little bit. Again, we’ve seen the Fed gradually lowering rates. The Fed’s still expecting to lower rates in 2025, albeit slightly less than what they were anticipating just a few quarters ago and again, our Chief Economist will cover that on FedWatch. But what I want to put on your radar today is we do expect higher levels of inflation out there in the future. We get a little bit of a break from inflation and I say a break, we still see inflation being between 2% and 3% in 2025, but likely at a level where the Fed is comfortable lowering rates to some extent.

But as we look at 2026 and beyond, really through the second half of the decade, we have gradual rate rise and inflation rise. So if you’re looking to make investments in your business to prepare for growth that we have forecasted as well in the second half of the decade, and you need to borrow or make investments in order to take on this future growth, we really see ’25 is the time to leap into action and make those moves. Again, we see higher inflation, we see higher interest rates as we look at really 2026 through 2030. And the last thing we wanna be doing is taking on a substantial amount of debt, especially as we get closer to 2030, because of course of that 2030 downturn that we’ve talked all about in the past.

So the times to make our moves is next year. As we look at 2025, we’d be investing in our businesses at a business cycle low. We’d be investing in our businesses at likely an interest rate low. And then we have five consecutive years of growth to follow that. So there’s no better time from our perspective than 2025 if you have major CapEx purchases that you’re looking to make, major efficiency investments that you’re looking to make to take on growth that characterizes the next five years.

And even though I’m talking about higher interest rates in higher inflation, as we look at 2026 and beyond, we’re still seeing economic growth. We still have five consecutive years of GDP growth between 2025 and 2030. So I don’t want you to be afraid of growth, but now is the time we really have to look at what does that growth look like for our business over the next five years? And what investments do we need to make now in order to be ready for that growth?

The question that I have is not whether we will grow over the next five years, but can we keep up with that pace of growth? And with higher inflation and higher interest rates, you likely don’t want to wait until 2028 or 2029, not just because of the 2030s, but also because you’d be borrowing at a much higher rate based on what we’re projecting as we look forward to the future.

So, again, I know I’m taking a step back and I’m looking at the long term but that’s that’s my job as an economist is to really take a look at the long term cycle and discuss how we take advantage of that. And again, I think you can see how important it’s going to be to make those moves now to avoid some of the challenges that we might see as we progress deeper in this decade and higher rates and higher inflation are definitely two of those challenges that we’re going to be contending with here in the US and in a number of areas around the world as we look out into the future.

Again, please head over to Fed watch our chief economist Brian Beaulieu goes through Fed action in our likely perspective and he’s going to go into that in greater detail than the zoomed out version that I’m providing you with here, but I think it’s important to zoom out at times. We’re very focused on the near term here in the United States. And I urge you all to take a step back and look at the bigger picture and make some of those decisions off the bigger picture.

Again, if we can help, please reach out to us. We are forecasting businesses all the way through the 2030s with our financial resiliency program to help you prepare for what the second half of the decade looks like and what the 2030s look like, and interest rates and inflation are a key component to shaping that future.

So I hope this information helped. I hope everyone had a great holiday season, has a great holiday season as we continue to progress into next year. It’s been a fun 2024. I look forward to bringing a lot of new insight to you all in 2025. Thanks so much for listening to TrendsTalk throughout this year. I really appreciate it. ITR really appreciate it. We’ll talk to you in 2025. Thanks so much and take care for now.