Editor’s Note: The CU Daily’s interview with Steve Rick was conducted just prior to President Trump’s announcement of a 90-day delay on most tariffs.
MADISON, Wis.–President Trump’s plan to implement tariffs on nearly every country in the world has led a team of credit union economists to update their projections for what’s likely ahead—but the forecast comes with a caveat that turned out to be prescient.
While currently delayed, the economists, with TruStage and America’s Credit Unions, said their new forecast assumes Trump’s tariffs continue through 2026 and that many countries will retaliate and the trade war would escalate.
“In this scenario we believe the U.S. economy would enter a recession in 2025 with full year GDP growth of only 0.5%, down from our previous forecast of 2.3% and below the economy’s 2% long run trend growth rate,” stated Steve Rick, chief economist with TruStage, in response to questions from The CU Daily.
Inflation to Rise
Rick said the credit union economists also believe inflation will rise to 3.5% in 2025, up from the previous forecast of 2.6%, and above the Federal Reserve’s 2% target as tariffs increase import prices and domestic producers raise the price of their competing products.
“We downgraded our labor market forecast and now believe the unemployment rate to rise to 5% by year end 2025, from 4.2% today and above the 4.5% considered to be full employment,” Rick said. “This economic scenario is basically a forecast of stagflation (recession + inflation), which is an extremely tough spot for the economy and the Federal Reserve. The Federal Reserve will be between the proverbial rock and a hard spot’ where lowering interest rates would make inflation worse and not lowering interest rates would make the unemployment rate worse.
“Ultimately, we believe the Federal Reserve will choose to lower the fed funds interest rate 3 times in 2025 by 25 basis points each for a total of 75 basis points,” Rick continued. “This will lower the effective fed funds rate from 4.33% today to 3.58% by year end.”
A Stagflation Scenario
With credit unions now facing a stagflation scenario for 2025, Rick said the credit union economists have downgraded their loan growth rate forecast and upgraded the savings growth rate forecast.
“With households facing greater income insecurity and stock market volatility we believe credit union deposits will grow 8% in 2025, up from the previous 6.5% forecast,” Rick said. “Loan growth is now forecasted to only grow 3.5% in 2025, down from the previous forecast of 5% and half the 7% long run trend growth rate. We also lowered the credit union average return on asset forecast to 0.4% for 2025, down from our previous forecast of 0.75% due to higher provisions for loan losses as loan delinquency and loan charge offs rise during the recession.”
An Important Caveat
Rick said there is an important caveat that must be kept in mind.
“The forecast confidence intervals are very large due to the real possibility that many of these tariffs are removed after some negotiations and threats, in which case the outlook would of course look better than our forecast,” he added.
