The first quarter of 2025 has been marked by significant economic and financial uncertainty. With ongoing discussions of a potential market correction and the recent halts in USAID funding affecting many of you, we know that concerns are mounting. The natural reaction in times like these is to feel unsettled—especially when financial markets fluctuate and external funding sources become less reliable.

However, history reminds us that emotional reactions to market volatility often lead to missteps. While no one can predict the future with certainty, we do know that long-term investment strategies have historically weathered even the most turbulent periods. Be intentional about what funding is short term, mid term, and long term.

That said, uncertainty is also a moment for opportunity. 

Now is the time for nonprofits to reassess their financial sustainability plans. Diversifying revenue streams, strengthening reserves, and evaluating investment strategies are proactive steps that can position your organization for resilience in the years ahead.

Our mission is to help you navigate financial complexity with confidence. We encourage you to stay informed, stay strategic, and above all, stay focused on the enduring mission of your organization. We’re here to provide guidance and support - please don’t hesitate to reach out.

Executive Summary

Current Conditions: The U.S. economy faces increased recession risks, driven by slowing consumer spending, rising debt servicing costs, and ongoing global trade uncertainties.

Market Trends: Equities remain volatile due to geopolitical instability and concerns over potential tariffs, while fixed-income markets are increasingly attractive amid high interest rates.

Outlook: overall economic activity is expected to slow further into Q2 2025, prompting potential monetary policy shifts from the Federal Reserve as early as next month. Nonprofit portfolios should emphasize risk mitigation and diversification.

Economic Activity

U.S. GDP growth has slowed to an annualized rate of 1.6% in Q1 2025, reflecting weakening consumer demand and cautious corporate spending. This economic slowdown may affect nonprofits reliant on individual giving, as disposable income contracts. However, corporate and foundation giving remains steady, offering some financial stability. Inflation continues to persist above 3%, driven by service sector price pressures and ongoing supply chain disruptions. The Federal Reserve Bank of Atlanta's GDPNow model estimates a -2.4% annualized contraction in U.S. GDP for Q1 2025, indicating weakening consumer demand and cautious corporate spending.The unemployment rate has edged up to 4.5%, indicating a softening labor market, while slower wage growth could impact middle-income donor generosity.

Inflation & Interest Rates

Inflation remains stubbornly above 3%, largely due to persistent service sector price pressures and supply chain disruptions tied to global trade tensions.

The Federal Reserve left interest rates unchanged in its first meeting of the year with the Federal Open Market Committee (FOMC) unanimously deciding to maintain the federal funds rate within the 4.25%-4.50% range. But, surprisingly slowing inflation in February may alter the Fed’s monetary policy in the coming months.

The Beige Book from the Fed showed modest gains in U.S. economic activity, but expectations for a rate cut are still low. However, the latest U.S. inflation figures could shift these projections.

The Federal Open Market Committee’s (FOMC) next two interest rate decisions are on March 19 and May 7  to assess economic conditions and determine any necessary monetary policy adjustments. Currently it is seen as less likely to deliver interest rate cuts with short term rates likely remaining at the current level of 4.25% to 4.5%. But, the potential for rate cuts is growing with the whipsawing on policy causing dents in confidence and uncertainty for businesses and consumers alike.

The potential for rate cuts introduces both opportunities and challenges for nonprofit financial planning, impacting investment yields and borrowing costs.

Current Yields*

The 10-year U.S. Treasury yield stands at 4.28%, reflecting strong investor demand for safe-haven assets amid economic uncertainty. The 2-year Treasury yield is currently at 3.94%, suggesting expectations of potential rate cuts in the near term. The yield curve remains positive, signaling cautious optimism for future economic stability and growth.

*yield rates as of March 14, 2025

Market Conditions

Recent tariffs on key imported goods, particularly in manufacturing, technology, and consumer sectors, have increased input costs for businesses, potentially reducing corporate profitability and donor giving capacity. Nonprofits may also face higher costs for essential imported supplies. Additionally, recent executive orders halting or significantly reducing USAID funding have created financial uncertainty for nonprofits reliant on international grants. Organizations engaged in global health, education, and humanitarian aid may need to seek alternative funding sources, such as private philanthropy and multilateral partnerships, to maintain operations.

Equity markets remain volatile, influenced by uncertainty surrounding new tariffs, fluctuating corporate earnings, and geopolitical instability. While technology and healthcare sectors continue to show resilience, industrials and consumer discretionary stocks have struggled. Nonprofits with equity investments should anticipate continued short-term volatility and focus on long-term resilience. Meanwhile, fixed-income investments remain attractive, with 10-year Treasury yields offering strong income potential for nonprofits prioritizing capital preservation. Municipal bonds also continue to provide stability and tax advantages, making them an appealing option for nonprofit investment strategies.

Forecasts for Q2 2025

GDP growth is expected to remain below 2%, with tight financial conditions and reduced consumer confidence presenting ongoing headwinds. While inflation may decline slightly, it is unlikely to reach the Federal Reserve’s 2% target in the near term. If recession risks continue to rise, the Fed may introduce rate cuts soon, impacting both borrowing costs and investment yields. Equity markets are expected to remain volatile, with moderate growth potential in defensive sectors such as utilities and healthcare. Fixed-income investments will continue to provide stability and income generation, particularly if interest rate cuts are on the horizon. In terms of donor behavior, major donors may shift toward donor-advised funds (DAFs) and planned giving vehicles for tax efficiency. Nonprofits should focus on legacy giving campaigns and endowment-building strategies to secure long-term financial resilience.

Strategic Recommendations for Nonprofits

To navigate the current economic landscape, nonprofits should prioritize diversification by balancing equity investments with high-quality fixed-income assets.

Maintaining a sufficient liquidity buffer is essential to weather potential downturns, while strategic donor engagement should emphasize tax-efficient giving options and the tangible impact of contributions. Leveraging financial technology can help streamline asset management, reporting, and donor engagement. Nonprofits affected by international funding reductions should proactively explore alternative financing options to sustain their operations.

Conclusion

With economic uncertainties persisting, nonprofits must stay agile in their financial strategies. By prioritizing diversification, prudent risk management, and proactive donor engagement, organizations can navigate short-term challenges while positioning themselves for long-term success. Infinite Giving remains committed to supporting nonprofits through these dynamic times with expert guidance and tailored solutions. For personalized assistance, please reach out to our team.

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