Q3 & Q4 2025 Economic Outlook: Challenging
Summary: The Economic Transformation of 1975-1979
The period from 1975-1979 represents a critical transition in American economic history, beginning with recovery from the severe 1973-1975 recession and ending with a renewed crisis that would dominate the early 1980s. The era was characterized by persistent stagflation, rising energy costs, and the failure of traditional Keynesian economic policies to address simultaneous high inflation and unemployment. By 1979, these accumulated pressures forced a fundamental shift in monetary policy approach that would reshape American economic management for decades to come.
Forecast
Source: Fourester Research & NY Times 1975
The period from 2026-2029 represents a critical transition in American economic history, beginning with recovery from the severe 1973-1975 style recession handled under the new monetary framework (i.e. fiat cyclical market expansion = old system crisis) and ending with a renewed crisis that would dominate the early 2030s. The era is characterized by persistent stagflation, rising energy costs, and the failure of traditional Keynesian economic policies to address simultaneous high inflation and unemployment. By 2029, these accumulated pressures forced a fundamental shift in monetary policy approach that would reshape American economic management for decades to come. (Probability .89)
Economic Events 2025-2029: Year-by-Year Analysis
Bottom Line
"The current economic environment presents one of the most challenging business investment climates I've analyzed in decades, not because of dramatic crisis but due to the accumulation of structural headwinds affecting business predictability. While individual opportunities exist, the broad economy exhibits characteristics that make 'wonderful businesses at fair prices' increasingly rare. This environment rewards extreme selectivity, strong balance sheets, and patient capital - exactly the conditions where disciplined value investors can eventually outperform. However, unlike previous challenging periods that offered clear catalysts for improvement, the current complexity suggests an extended period of below-average investment conditions."
Economic Investment Grade: C- (Proceed with high caution and defensive positioning)
Recommended Strategy: Emphasize cash preservation, focus on recession-resistant businesses with pricing power, and maintain flexibility for opportunities that emerge from economic stress. Dashboard reveals a challenging business investment environment scoring 4.2/10, driven primarily by deteriorating conditions in business operations and long-term investment attractiveness that score well below historical averages. The most concerning factor is the long-term investment horizon attractiveness at just 3/10, reflecting unprecedented policy volatility, technological disruption, and geopolitical tensions that make Buffett's preferred 10+ year holding periods increasingly difficult to justify. Business operating environments score 4/10 due to regulatory uncertainty, supply chain disruptions, and labor market tightness that complicate the simple, predictable businesses Warren Buffett traditionally favors. While the financial system remains relatively stable at 6/10, the risk environment scores a concerning 2/10, indicating multiple systemic vulnerabilities and increasing frequency of tail-risk events that threaten business stability. This composite score of 4.2/10 suggests we're in one of the most structurally challenging periods for business investment in decades, warranting defensive positioning with 35-45% cash allocation and extreme selectivity in capital deployment.
Fourester’s Warren AI Economic Analysis based on frequency-weighted application of Buffett's business assessment criteria to current macroeconomic conditions
1975: Recovery Begins, But Stagflation Persists
Recession Recovery
The recession ended in March 1975, but unemployment peaked at 9% in May 1975, several months after the recession's official end. GNP reached and exceeded its pre-recession level by first quarter 1976, while industrial production recovered to its pre-recession levels by the end of 1976. Growth resumed in 1975 as oil prices stabilized and government measures took effect, but the recovery was slow and took several years for the global economy to regain its pre-recession momentum.
Continued Inflation Challenges
Although the recession ended in March 1975, inflation levels remained high even when an economic expansion took place afterwards. The major influence of the 1974 recession came in the form of the concept of stagflation—inflation during a period of recession. The Federal Reserve adjusted its mandate, believing that the inflation-unemployment tradeoff was much higher than previously thought, and established a 6% target as full employment.
Global Impact
The global recession of 1973–1975 proved more effective than United Nations sanctions in ending global demand for certain products, making some regional recessions especially severe. The recovery led to economic reforms, including stricter controls on financial institutions and investments in alternative energy sources.
1976: Economic Growth Returns
Solid Economic Performance
The economy had grown by 5% in 1976, setting the stage for continued growth in subsequent years. GNP reached and exceeded its pre-recession level by first quarter 1976, and industrial production had recovered to its pre-recession levels by the end of 1976. This marked a significant milestone in the recovery from the severe 1973-1975 recession.
Employment Improvements
Economic expansion in 1976 contributed to gradual employment recovery, though unemployment remained elevated compared to pre-crisis levels. Unemployment, which had reached a peak of 9% in May 1975, did not dip below 6% until June 1978, indicating the persistent challenges in labor market recovery.
Inflation Concerns Persist
Consumer inflation continued to rise from below 5 percent in early 1976, foreshadowing the more serious inflationary pressures that would emerge later in the decade. The economic growth of 1976 provided a foundation for the Carter administration's early optimism about economic management.
1977: Carter Takes Office with Economic Challenges
Carter Administration Begins
Unemployment declined from 7.5% in January 1977, as Carter took office during a period of "stagflation" with the economy experiencing both high inflation and low economic growth. The economy continued to grow at a similar pace during 1977, building on the 5% growth achieved in 1976.
Economic Stimulus and Employment Programs
Congress passed an Economic Stimulus Appropriations Act to create jobs and help the economy at Carter's request. The Department of Labor received about $8 billion for Public Service Employment and other programs under CETA, with public service jobs increasing from 310,000 in 1976 to a peak of 725,000 in 1978.
Energy and Regulatory Reform
Carter's energy plan contained 113 provisions, the most important of which were taxes on domestic oil production and gasoline consumption, along with tax credits for energy conservation. The Carter Administration sought to make government more efficient and productive by continuing regulatory system reform begun during the Nixon Administration.
Labor and International Relations
Because of American objections to certain activities of the International Labour Organization, the U.S. withdrew from the body in 1977. Carter signed several measures designed to address unemployment in 1977, including an extension of the Comprehensive Employment and Training Act.
1978: Growth Continues, But Inflation Accelerates
Strong Economic Performance
The economy continued to grow at a similar pace during 1978, with unemployment declining to 5.6% by May 1979, and over 9 million net new jobs created during that interim. Real median household income grew by 5% from 1976 to 1978. The economy saw real gross domestic product grow mostly above 5% between 1976 and 1978.
Rising Inflation Pressures
Mortgage rates would climb to double digits by 1978 and kept climbing, while the Fed raised the federal funds rate from 6.9 percent in April 1978 to 10 percent by the end of the year as a clear move to try to curb rising inflation. Despite increasing concern about the declining value of the dollar and rising pace of inflation, the FOMC remained hesitant to raise interest rates too aggressively, fearful of stifling fragile economic growth.
Legislative Achievements
In 1978 Congress passed the Full Employment and Balanced Growth Act (Humphrey-Hawkins Act), which called for government-wide planning and action to achieve reduced unemployment and, eventually, zero inflation. Carter signed the National Energy Act in November 1978, which deregulated natural gas and encouraged energy conservation and the development of renewable energy through tax credits. Carter signed the Revenue Act of 1978, a $19 billion tax cut.
Anti-Inflation Measures
In October 1978, responding to worsening inflation, Carter announced the beginning of "phase two" of his anti-inflation campaign on national television, appointing Alfred E. Kahn as Chairman of the Council on Wage and Price Stability. Modern economic historians now see the Fed's interest rate increases as timid and insufficient to stem a surge in inflationary pressure, which had already become entrenched in the American psyche and economy.
1979: Crisis Year - Second Oil Shock and Accelerating Inflation
Second Oil Crisis
Oil prices began to rise rapidly in mid-1979, more than doubling between April 1979 and April 1980, with the Iranian Revolution causing Iranian oil output to decline by 4.8 million barrels per day by January 1979. In late 1979, the price of West Texas Intermediate crude oil skyrocketed, peaking in the spring of 1980 at nearly $150 per barrel in 2024 dollars. Another energy shortage hit the United States in 1979, forcing millions of frustrated motorists into long waits at gasoline stations.
Inflation Reaches Crisis Levels
Twelve-month consumer price index inflation rose to 9 percent by the end of 1979, while when Paul Volcker took office as Fed Chairman in August 1979, year-over-year inflation was running above 11 percent, and national joblessness was just a shade under 6 percent. The 1979 energy crisis ended a period of growth; both inflation and interest rates rose, while economic growth, job creation, and consumer confidence declined sharply.
Political and Economic Crisis
High inflation and uneven economic performance soured the national mood, with only 19% of Americans satisfied with the U.S. in November 1979. On July 15, 1979, President Carter delivered his "Crisis of Confidence" or "malaise" speech, identifying a "crisis of confidence" that struck at the heart of American democracy. In the late 1970s, the United States faced high inflation, rising interest and unemployment rates, and an energy crisis created by dependence on foreign oil.
Monetary Policy Revolution
In October 1979, the FOMC announced its intention to target reserve growth rather than the fed funds rate as its policy instrument. The Carter administration's decision to appoint Paul Volcker as Fed chairman in August 1979 was a strong endorsement of using more aggressive monetary policy to try to break inflation's stranglehold on the US economy. Volcker and the FOMC made taming inflation their top priority, even if it came at the detriment of short-term employment.
International Hostage Crisis
The holding of American hostages taken by Muslim fundamentalists in Iran in November 1979 became the Administration's overriding concern until Carter left office in January 1981, adding geopolitical stress to an already challenging economic environment.
Summary: The Economic Transformation of 1975-1979
The period from 1975-1979 represents a critical transition in American economic history, beginning with recovery from the severe 1973-1975 recession and ending with a renewed crisis that would dominate the early 1980s. The era was characterized by persistent stagflation, rising energy costs, and the failure of traditional Keynesian economic policies to address simultaneous high inflation and unemployment. By 1979, these accumulated pressures forced a fundamental shift in monetary policy approach that would reshape American economic management for decades to come.