Chart of the Week

Despite a year of sluggish growth, tariff uncertainty, and market volatility, we believe the U.S. economy will skirt a recession in 2025 as key supports limit the depth and duration of the ongoing slowdown. One of these supports is unusually subdued inflation. As the chart shows, recessions have typically followed periods of high and usually rising inflation (as measured by the Consumer Price Index). However, in this instance, inflation peaked in 2022 and has been trending lower since.

The chart highlights that in the four recessions since 1990, inflation has risen or been elevated heading into the slowdown. In contrast, over the past year, softening inflation has provided what we believe will be an unusual cushion heading into this summer's tariff-induced slowdown by supporting real (inflation-adjusted) incomes, adding to household purchasing power, and by restraining longer-term interest rates and financial stress.

Looking into 2026, we expect the U.S. economy to adjust to the disruptions that have been the highlight of the first half of 2025. While uncertainties about the pace and strength of a global recovery may linger into 2026, we think they will become less of an overhang for markets next year. For more detail on our expectations through year-end 2026 and their implications for markets, please see our May 15 Institute Alert, “Introducing our 2026 targets.”

Forecasts and targets are based on certain assumptions and on views of market and economic conditions which are subject to change.

Consumer Price Index (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services.

An index is unmanaged and not available for direct investment.

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