March 25, 2025

The Markets

Last week, the Federal Reserve (Fed) left the federal funds rate unchanged, and Fed Chair Jerome Powell soothed markets. He explained that conditions in the labor market were broadly in balance and inflation had eased significantly over the past two years. Overall, the possibility of recession, while rising, remained low.

Markets rallied following his comments.

The Economic Outlook for 2025

The Fed’s current median forecast for economic growth in 2025 is 1.7 percent, a bit lower than it was in December. In addition, the Fed’s current median estimate for inflation is 2.7 percent, a bit higher than in December. While he was reassuring, Powell explained there is a lot of uncertainty about the economic outlook in the United States. He stated:

“Looking ahead, the new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of all monetary policy. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high. As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves.”

Consumer Spending and the Wealth Effect

Powell also said that it remains to be seen how consumer and business spending and investment will respond to heightened uncertainty about the economic outlook. It’s an important point because of the “wealth effect”.

The wealth effect is a theory in behavioral economics. It holds that people spend more when the stock market is rising and the value of their assets is growing. Conversely, people spend less when the stock market is falling and the value of their assets is declining. It’s difficult to quantify the effect as Mike Bird of The Economist explained:

“Estimates of the ‘wealth effect’ – the amount that rising or falling stocks can support or hurt consumer activity – vary wildly. One academic study in 2019 suggested that a dollar increase in stock market wealth boosted American spending by about three cents. [A large financial-services firm] suggests that the pass-through has risen significantly in recent years, coming up with an extraordinary figure of 24 cents. Whatever the true number, a declining stock market matters for the broader economy.”

Last week, major U.S. stock indices finished higher, while yields on most maturities of U.S. Treasuries moved lower.

Data as of 3/21/25	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 Index	0.5%	-3.6%	8.1%	8.3%	20.4%	10.4%
Dow Jones Global ex-U.S. Index	0.9	7.0	5.8	3.0	12.0	2.6
10-year Treasury Note (yield only)	4.3	N/A	4.3	2.3	0.8	1.9
Gold (per ounce)	1.2	15.4	38.9	15.9	14.6	9.8
Bloomberg Commodity Index	0.4	6.6	5.9	-5.7	11.2	0.5

If You Lose Your Wallet, Do You Expect It To Be Returned?

Here’s some good news from the 2025 World Happiness Report: “People are too pessimistic about the kindness of their communities.”

As usual, the 2025 World Happiness Report offered insights to the countries where citizens are happiest. Once again, Nordic nations dominated. The United States landed in 24^th place. The countries where the happiest people live are:

1. Finland,
2. Denmark,
3. Iceland,
4. Sweden, and
5. Netherlands.

Where Are People Most Benevolent?

The 2025 report also tracked a trend that surprised researchers during the Covid-19 years. In 2020, there was an upsurge in benevolent acts – people doing kind things for one another. Researchers theorized that helping others may have “…offset the negative effects felt by many of those whose lives were changed, endangered, and sometimes harmed during the pandemic.”

For the 2025 report, researchers asked how often people performed acts of kindness, specifically donating, volunteering, and helping strangers. The most benevolent countries varied, depending on the type of kindness.

• For donations, Indonesia, Myanmar, and Ukraine ranked first, second, and third.
• For volunteering, Indonesia, Liberia, and Kenya took top honors.
• For helping strangers, Jamaica, Liberia, and Trinidad & Tobago were the leaders.

The United States was 12^th for donations, 15^th for volunteering, and 12^th for helping a stranger.

What About Lost Wallets?

The study also asked participants how likely it was that a lost wallet would be returned. They compared the data to studies where researchers “lose” wallets to see how often they are returned. Overall, expectations that wallets would be returned were far lower than actual returns.

For example, the actual return rate for lost wallets was 1.8 times higher – almost double – the average estimated return rate. In addition, wallets were more likely to be returned if they contained money.

By the way, the best place to lose your wallet is in a Nordic nation. These countries had both the highest expected and the highest actual rate of return for lost wallets.

Weekly Focus – Think About It

“No act of kindness, no matter how small, is ever wasted.”

—Aesop, Storyteller

Wishing you and your families well,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management

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