As we step into Q2 2025, the economic landscape is shaped by a myriad of factors. Our latest Q2 2025 Look Ahead report dives deep into the nuanced interplay between consumer sentiment, policy uncertainty, and the potential for interest rate cuts. 

1.  Consumer Sentiment vs. Economic Reality

Although consumer sentiment surveys show a significant downturn, the actual economic indicators tell a different story. Wage growth remains robust, and job creation continues to be strong. This disparity between soft data (sentiment) and hard data (economic performance) will be a crucial pivot point to watch in the coming quarter.^{1 2}

2.  Policy Uncertainty and Its Impact

Much of the negative consumer sentiment can be attributed to the rising policy uncertainty, particularly around tariffs and taxation. The rapid escalation of the Policy Uncertainty Index highlights concerns over the depth and breadth of tariff policies, which act as a de facto sales tax on consumers. The historical perspective shows that markets tend to rally post-policy interventions, suggesting potential relief through anticipated tax cuts.^{3 4}

Click on this link to learn more about how we see Q2 unfolding.

3.  The Probability of Interest Rate Cuts

With recession risks rising, the probability of interest rate cuts has increased significantly. Energy price declines, which ease consumer prices, provide the Federal Reserve with the leeway to cut rates, potentially as soon as June. Market expectations align with at least a 0.5% reduction by year-end, indicating a favorable environment for lower borrowing costs.⁵

These insights and charts offer a glimpse into the detailed analysis presented in our Q2 2025 Look Ahead report. As we navigate the uncertainties and opportunities of the upcoming quarter, these indicators will be essential in understanding the broader economic trajectory.

Click here for the full report to gain a comprehensive understanding of the factors that will shape our economic outlook for Q2 2025.

If you have questions or comments, please let us know. You can contact us via X and Facebook, or you can e-mail Tim directly. For additional information, please visit our website.

Tim Phillips, CEO, Phillips & Company 

Sources:

1. https://x.com/TihoBrkan/status/1893212394605699190
2. https://x.com/NickTimiraos/status/1898004234190115180
3. https://www.policyuncertainty.com/index.html
4. https://x.com/dailychartbook/status/1899014864737128651
5. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

The material contained within (including any attachments or links) is for educational purposes only and is not intended to be relied upon as a forecast, research, or investment advice, nor should it be considered as a recommendation, offer, or solicitation for the purchase or sale of any security, or to adopt a specific investment strategy. The information contained herein is obtained from sources believed to be reliable, but its accuracy or completeness is not guaranteed. All opinions expressed are subject to change without notice. Investment decisions should be made based on an investor’s objective.