2025 Outlook: What's Ahead for Banking and the Economy

With the presidential election in the rearview, many may be pontificating what's ahead for New Jersey's economic future.

COMMERCE reached out to leaders in New Jersey's banking community to ask "what economic factors are most influential in shaping the coming year for the state and the industry?" Among the opinions, we heard that if the Federal Reserve continues cutting interest rates as expected, the banking industry will experience both challenges and opportunities in 2025. Meanwhile business owners remain focused on planning for sustainable, long-term growth while also carefully paying attention to how they confront their immediate needs. Additionally, more consumer and business clients are waiting on the sidelines until they have a clearer picture of the potential impacts of the next administration.

Read on to learn what's ahead for the banking industry and economy.

Columbia Bank

Thomas J. Kemly

President and CEO

We expect that potential policy changes and Federal Reserve action will lead to a stronger economic climate in 2025. New Jersey businesses have been both resilient, and cautious over the past year. With the election behind us and the Fed actively managing the interest rate environment, we anticipate that business investments will accelerate, and lending demand will rise.

ConnectOne Bank

Frank Sorrentino

CEO & Founder

Several economic factors are shaping the landscape for both New Jersey and the banking industry in 2025. With recent interest rate cuts, we're transitioning into a more favorable rate environment, gradually reaching a new normal that fosters economic stability and growth. This shift is expected to stimulate borrowing and investment activity, creating opportunities for strategic growth, while supporting a balanced pace of economic activity.

In New Jersey, the housing market remains a critical driver, fueled by low inventory that spurs robust construction and real estate lending. This shortage provides openings for developers and lenders to address housing needs with strategic projects that benefit local communities. Additionally, New Jersey businesses are adjusting to a normalized environment by prioritizing efficiency and profitability over rapid expansion, a trend that positions them well for sustainable growth.

As the economy evolves, relationship banking becomes more essential than ever. At ConnectOne, we are uniquely positioned to guide clients through these economic shifts with a tailored, relationship-based approach that supports long-term stability. This commitment helps local businesses and individuals capitalize on new opportunities in a thoughtful, resilient manner.

As we move into the new year, ConnectOne sees ample opportunity for growth in a more balanced economy, where strategic investments in technology, housing, and local partnerships drive meaningful growth and opportunity across New Jersey.

New Jersey Bankers Association

Michael Affuso, Esq.

President & CEO

If the Federal Reserve continues cutting interest rates as expected, the banking industry will experience both challenges and opportunities in 2025. Lower rates typically compress net interest margins, the difference between what banks earn on loans and pay on deposits. This will reduce profitability, especially for smaller banks that rely heavily on traditional lending. Banks may respond by increasing fees, tightening lending standards, or seeking higher-risk lending opportunities, which could elevate credit risks.

However, lower rates could also stimulate loan demand, particularly in sectors like mortgages, auto loans, and business credit. Banks with strong non-interest revenue streams — such as wealth management, investment banking, and payment services — may better navigate the environment. Additionally, lower rates may reduce funding costs, especially if deposit rates drop in tandem, helping banks manage liquidity more efficiently.

A prolonged period of rate cuts could also push banks to accelerate digital transformation and reduce operational costs to maintain profitability. Mergers and acquisitions may increase as smaller or struggling banks look for strategic partners.

TD Bank

Don Buckley

Commercial Market President of Northern NJ

Our state economy is poised to pick up the pace in 2025 as lower interest rates begin to stabilize overarching economic growth. As a further push in the right direction, New Jersey's unemployment rate should begin a gradual downward trend as we enter 2025, according to a recent report by TD Economics, the research arm of TD Bank. Further, a TD Bank survey of approximately 1,000 small businesses found that, despite ongoing market shifts and macroeconomic volatility, small business owners in New Jersey and across the country are exceedingly positive, with 90% stating they feel optimistic about their business performance into 2025 — certainly a promising light at the end of the tunnel following prolonged economic turbulence.

Still, the need to support and guide our small business community remains, as 58% cited increasing costs of supplies, materials and equipment as reasons to be cautious as the new year approaches. Along those lines, persisting supply constraints are expected to keep prices elevated in the short-term, although there could be some relief as the year progresses.

Overall, it is clear business owners remain focused on planning for sustainable, long-term growth while also carefully paying attention to how they confront their immediate needs. It all goes to illustrate how heavily small businesses will continue to rely on financial institutions to help them navigate economic uncertainties as well as growth opportunities.

Valley National Bank

Tom Iadanza

President

As we look ahead to 2025, several key factors will have a major impact not only on the banking industry but on New Jersey's economic landscape as well. But maybe the most important factor we need to consider is the election.

Historically, elections often bring a sense of uncertainty as consumers and businesses grapple with potential changes in policies, regulations, interest rates and taxes – all of which will have a profound impact on our economy at both the national and state levels.

Financial markets tend to react to political uncertainty with increased volatility and we're seeing more consumer and business clients waiting on the sidelines until they have a clearer picture of the potential impacts of the next administration. While this volatility can influence everything from consumer confidence to corporate earnings, we've seen resiliency and cautious optimism from our clients, regardless of which party comes out on top.

Our role, as relationship bankers, remains unchanged. We continue to partner closely with our business clients to understand the sources of potential volatility, communicate the implications of this uncertainty and offer proactive solutions and services to help them navigate turbulent times.

The strength of our local and national economies is built on the foundations of a robust banking industry, resilient labor market and commitment to innovation and entrepreneurship. Regardless of the outcomes of the new administration, these fundamental factors ensure that our economy will remain strong in the coming months and will not only endure but thrive well into the coming year.