Anne Villamil delivers the keynote speech at the Corridor Business Journal's annual Economic Forecast Luncheon on Jan. 15 in Cedar Rapids. CREDIT PARKER JONES
While the macroeconomy outlook is broadly positive, there are still several unknown factors as the nation heads into the next presidential administration. University of Iowa Economics Professor and Henry B. Tippie research fellow in economics Anne Villamil shared her insight for 2025 at the Corridor Business Journal’s annual Economic Forecast Luncheon at the DoubleTree by […]
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While the macroeconomy outlook is broadly positive, there are still several unknown factors as the nation heads into the next presidential administration. University of Iowa Economics Professor and Henry B. Tippie research fellow in economics Anne Villamil shared her insight for 2025 at the Corridor Business Journal’s annual Economic Forecast Luncheon at the DoubleTree by Hilton in Cedar Rapids Jan. 15. Ms. Villamil explored three key economic indicators, including the steadily growing GDP, low unemployment, and improving inflation. She also touched on the role of the Federal Reserve System, its board of governors and the dual mandate it aims to uphold, particularly during times of public uncertainty.
GDP, unemployment, and inflation
Ms. Villamil highlighted GDP growth, which remained at around 3% in 2024 and is in the “upper range” of what economists look for. “The news right now is good; actually, very good,” Ms. Villamil said. “The Fed predicts, going forward, that GDP is going to continue in that [2-3%] range. So that's good news, and I think that's part of the optimism…So you’ll probably notice, if a number comes out too strong, then markets go down, and that's because we are very much in this, hopefully, Goldilocks economy: not too high, not too low, just right.” Unemployment has remained low — at 4.1% presently — since bouncing back from the COVID-19 pandemic, which skyrocketed unemployment rates up to 15%. The current level, she explained, is historically favorable and indicates that the labor market remains stable without significant wage inflation pressures. For 2025, the Fed predicts unemployment will continue at around 4%.Inflation, a core concern for policymakers and businesses alike, shows signs of improvement for 2025. Ms. Villamil cited the latest Consumer Price Index (CPI) figures — released on Jan. 15 — noting that core inflation, which excludes volatile energy and food prices, has dropped to 3.3%. “The Fed aims for 2% inflation, and while we’re not quite there yet, today’s numbers show we’re on the right path,” she said, describing the report as a “good surprise.”
Policy changes
While CPI figures are important, Ms. Villamil also touched on the potential changes in monetary, fiscal, and trade policy that could swiftly impact economic predictions. “Monetary policy is conducted by the Fed, and the Fed is independent...Fiscal policy requires the president and Congress to pass bills which, as we know, can be difficult,” Ms. Villamil said. “And then trade policy is an area that's getting much more attention. The Constitution gives Congress primary power to levy tariffs and regulate commerce, and while the president does not have specific authority to do things with regard to trade, the executive office has power over foreign affairs. It certainly negotiates treaties with nations, and it has a so-called legislative land authority to set the tariff rates.”She noted monetary policy’s influence on interest rates, pointing to the Federal Reserve’s dual mandate of price stability and full employment. She said the country can expect interest rate cuts if inflation remains under control. If inflation resurges, the Fed is prepared to act. “Just over the last three weeks, markets have been thinking or reacting [by lowering interest rates],” Ms. Villamil said. “I’m thinking interest rates may not come down as quickly as they could, but these change constantly based on new information, and the information today is good information, and that's what markets do: They price out information.”On fiscal policy, Ms. Villamil described the growing national debt as an “unsustainable path.” She said a combination of economic growth, spending cuts, and tax adjustments would help address structural imbalances. Presently, the government is spending more money than it is taking in. Ms. Villamil also highlighted the risks of protectionist measures like tariffs, which have been the subject of much political and economic tension going into President Donald Trump’s administration. Trade policy, she said, is usually not as prominent when predicting the economy, but President Trump has heightened the focus this year.
Tariffs and the future
Tariffs may raise revenues for the government, and they may protect domestic industries and workers, but the concerns center on inflation and higher interest rates, she said. If there is more inflation, the Fed may address it while not lowering interest rates, or in the extreme, would stand ready to raise rates if necessary.“Increases in tariffs tend to reduce global GDP, and we could all benefit from a bigger economic pie. And in the extreme, [they] could lead to a trade war,” Ms. Villamil said. “President Trump indicated that we would have minimum tariffs of 10-20% on all imported goods and more than 60% on China… It's not clear that this is going to happen, but I actually think it's a good thing.” Ms. Villamil described this potential trade policy as a “bargaining position,” with executive authority derived under the International Emergency Economic Powers Act. “There are clearly problems with trade. There are international treaties that just haven't been working,” Ms. Villamil said. “Two concerns: one is the inflation, the second is the trade war. I do think that we could get this fixed before we ended up with a devastating trade war because we know how bad this could be, but if we can make trade work more effectively…If those things can be negotiated, which I think is the goal, then that would be a good thing. But, there's also a risk.” During a Q&A session after her speech, Ms. Villamil noted the income disparities — including the challenges faced by many Americans living paycheck to paycheck — despite a positive economic future.“So the disconnect is the income distribution,” Ms. Villamil said. “That is correct data on these [economic] shocks that some people cannot handle. But there are other parts of the economy that people in the economy are doing very, very well. So that's what's happening, and that is an issue.” She said the solution lies in fiscal policy and largely depends on political beliefs of what taxes should look like and what government spending programs should look like when addressing inequities.To conclude, Ms. Villamil mentioned that economic predictions are just that: predictions, but that consumers can be cautiously optimistic. “There are big shocks that we need to address, and we need to address them both in terms of things that are happening: changing regulations, insurance, geopolitical shocks, which are just difficult to predict, and dot, dot, dot," Ms. Villamil said. “Things happen that are not even on our radars. But overall, where we are right now is a good place, and we do have challenges going forward, but we can, with appropriate policies, address them.”
