2025’s Inflation Will Stay Low

Politicians and the media tell us “it’s all about inflation” and that they’ve got the ultimate remedy.

It may be their call for us to give up on an economic recovery, rely on debt spending, and accept a persistent, unpleasant fate. That’s not the fix or result Americans are wanting. And without the political change that’s happening now, 2025 would otherwise be another, perhaps more devastating year for small business, the indebted, unemployed, poor and elderly.

How Will 2025’s Inflation Affect You?

You’re wondering about how much inflation is going to hurt you as you have to refinance your mortgage, feed your family, pay your rent, buy clothes or take a vacation. It’s tough to plan at all with the economy in this agonizing limbo.  Well, there’s good news, and hopefully, you’ll be able to refinance at sub 6% next year, and consumer inflation has been down for 13 months.

One of the key factors in inflation control is that prices of food, homes, rent, and everything else is very high, thus cooling excessive demand and purchases. People are buying what they can afford which keeps inflation down.  The factors listed below show an overwhelming force for lower prices. The 2024 election though is a key factor. That outcome seems clear, but not certain yet.

Tom Lee of Fundstrat believes Inflation Will Fall Like a rock.

2025 Headed for Steller Performance

That’s why 2025 will be a great year and 2026 will be even better. It’s all about the 2025 economy and the 5 year stock market outlook. Because Americans yearn to jettison the past and move on to better times.

Below, courtesy of Statista, the inflation rate is clearly seen under control for the last 13 months. So the continuation of elevated rates is highly suspicious, and makes us wonder about ulterior motives (Chicago FEDs Goolesby spoke of a dual mandate in a Bloomberg interview).

Who is Trying to Keep Inflation Persistent?

Clouding the picture are those resistant to easing all of the contributing factors to high inflation. Instead, they might be trying to feed the inflationary fire for ulterior political motives (deficit spending and selling treasuries) while appearing to put out the fire with so called anti-inflation spending packages. If you’ve tried to put out a barbecue fire with more barbecue lighter fluid, you recognize what the government is up to.

High rates help the US government sell bonds and treasury bills in order to fund government operations (debt financing). The rate has to be as high as other countries to attract buyers. As Japan and Europe lower their central bank rates, the FED will be forced to lower its core rate.  With lower tax revenues from a tortured suppressed economy, treasuries, bonds and money printing seem to be priority for the current US government. They don’t see any other way. They would have to reverse all of the policies they’ve enacted in 3.7 years.

And in moving money to government, it withdraws funds from the private sector reducing business formation and viability. Starting a business is too risky in high rate eras. And then in raising rates, existing American companies are strangled. Big multinationals of course, their golden child, are their own banks, and don’t operate in reference to FED decisions, inflation or financing hurdles. They’re sort of like vacationing predators.

Realtors, travel companies, manufacturers, small software startups, and other SMB’s get hung out to dry, with little hope of prosperity and demand returning.  Well, hope is finally arriving with a landing next year.

After reading below, you’ll get a good view of why inflation will stay low and interest rates will drop.

Experts Forecast Lower Inflation Ahead

In fact, several noted experts such as Fundstrat’s Tom Lee, Chicago Federal Reserve Bank President Austan Goolsbee, and FED chair J Powell says inflation is down and looking like it’s under control. Tome Lee believes inflation will drop like a rock. That might be due to the FED holding onto long, and then overreacting to recessionary trends.

However, a panoply of deflationary forces are coming into play, and should correct the pseudo problem with the US economy. The real problems are continued stimulus spending, regulations, and lack of competition and supply that’s keeping prices elevated.

Let’s look quickly at both side of the inflationary issue:

Inflation could drop due to:

• Lower interest rates
• Lagging effects of high interest rates slow tge economy in 2024
• Reduced government money printing and spending
• Deregulation frees US businesses from costly delays and restrictions
• Increased energy supply and lower gas prices
• Lower taxes eases businesses need to raise prices
• AI automation could increase unemployment and reduce US worker buying power
• Illegal alien deportation would ease costly government spending and reduce housing demand
• China goods dumping — electric vehicles, parts, electronics, machinery, etc routed through Mexico
• Recession as the FED keeps rates high even though inflation has reached 2%
• Mortgage default crisis as homeowners must renew at high mortgage rates
• Home prices fall as mortgages remain high and sellers keep listing their properties yet buyers still cant afford them

And what might actually raise consumer and business prices:

• High for longer interest rates
• Investment leaving Megacaps to broaden small cap growth means small businesses can restart their prosperity
• Continued high demand from Millennials/GenZ along with millions of illegals beginning to find jobs
• xChina import prices rise due to import tariffs
• China’s refusal to export to US to hurt the US economy and as a trade restriction retaliation
• $6 Trillion in money market funds moving to the stock market to stimulate business spending
• OPEC oil production cuts raises oil prices
• New trade restrictions on evil nations shuts out their supply to US
• Economic rebound and business revival creates strong demand for goods and services
• Industrial supply shortages
• New wars requiring massive spending bills that pull American workers over to military production
• Collapsing US dollar as investors give up on the US greenback when the US economy tanks

Given all of the above factors, it looks like a lower inflation scenario. However, it’s a challenge to make economic forecasts or stock market predictions given political uncertainty, and the complexity of supply and demand in the economy.

If the US economy surges too fast and supply can’t be restarted, for whatever reason, then inflation could be reignited.

However, if the real goal we’re seeking is a better economy, higher incomes, and a better life, we may have to accept some inflation and discomfort.

I hope this helps answer your questions on the persisting high interest rates and how inflation is fueled.  Your worry about 2025 is warranted because the November decision isn’t certain. There is room for a stock market crash and an economic collapse if the government doesn’t return to a Pro-US policy and free up business again.