What’s Driving Unprecedented Uncertainty in 2025 and How Can We Manage It?

By many measures, 2025 stands out as especially turbulent. From budget gridlock and geopolitical tensions to shifting monetary policy and volatile markets, uncertainty isn’t just in the background — it drives the headlines.

“Uncertainty is the game in town,” says Bo Sun, an associate professor of business administration in the Global Economies and Markets area at the University of Virginia’s Darden School of Business. Sun has spent much of her career analyzing the complexities of uncertainty.

Associate Professor of Business Administration, Bo Sun.

To be sure, uncertainty is not a new phenomenon. There have been many times of heightened uncertainty in recent memory — from the Great Financial Crisis (GFC) that began in 2007 and culminated in the Great Recession of 2009, to the US-China trade war, Brexit in 2020, the global COVID-19 pandemic, and the ongoing geopolitical conflicts in various regions.

“There’s been elevation in economic uncertainty for quite some time, spanning over a broad range of domains. It’s something that the economics profession has begun to grapple seriously with,” says Sun, who spent a decade as an economist at the Federal Reserve Board and is co-author of the 2023 paper, “What is Certain about Uncertainty?” and a 2020 paper, “Monetary Policy Uncertainty.” She also teaches the second-year elective, “Managing Economic Uncertainty” and has co-organized the annual Stanford Institute Theoretical Economics (SITE) conference on the macroeconomic effects of uncertainty since 2022.

“What’s different now is both the level and the pervasiveness of uncertainty,” says Sun.

One measure of uncertainty is the CBOE Volatility Index, or VIX, often referred to as Wall Street’s “fear gauge” or “uncertainty index.” A higher VIX reading indicates greater anticipated volatility and market uncertainty, while a lower VIX reading suggests market stability. In general, a VIX reading above 20 indicates investors expect higher than normal volatility in the market over the next 30 days.

Over the last decade, the VIX has averaged just above 19. On April 8 this year,  the VIX closed at 52.3. There have only been two other periods in the past 20 years when the VIX has ended the day above 50: late 2008 and early 2009, during the GFC; and early 2020, during the pandemic-induced market selloff.

With so much turbulence and unpredictability in policies, it’s no surprise that “uncertainty” has become the go-to word for policy makers and CEOs. Corporate executives mentioned the term in 87 percent of earnings calls this season, compared with 38 percent in the previous three months, according to FactSet.

It’s also cropping up in statements from the Federal Reserve and comments from Chair Jerome Powell. At a press conference this month following the FOMC decided to hold rates steady, Powell uttered the word “uncertainty” seven times.

With policymakers and markets fixated on the unknowns, understanding how to think about uncertainty has never been more important.

The Darden Report spoke with Sun to learn more about how to frame uncertainty, what concerns her most in today’s environment and how to manage it. An edited version of the conversation follows.

Q: What do people misunderstand about uncertainty?

A: People tend to equate uncertainty with risk. Risk implies that you can assign probabilities to a range of possible outcomes, which can often be analyzed and hedged against, using quantitative models. Uncertainty is different. Think of events like Brexit, the pandemic, or what we’re experiencing in 2025 — we didn’t even know the full range of outcomes, let alone assign probabilities. At its core, uncertainty can be thought of as the unknown about the unknown.

Q: How do you define uncertainty?

A: Uncertainty is characterized by both an unknown outcome and an unknown probability distribution, forcing decision-makers to operate beyond the comfort of quantifiable risk models.

Q: Have you experienced anything like the level of uncertainty we see today?

We have not seen this heightened level in recent economic history. Measures of economic policy uncertainty show historically high levels this year.

Q: What prompted your interest in uncertainty?

A:  The economics of information friction, including uncertainty, has been a primary research interest of mine. There was a conundrum a few years ago that gained traction: policy uncertainty was persistently elevated, while VIX, the common market-based measure of uncertainty, remained subdued. It raised a number of academic and policy questions, ranging from how to appropriately measure uncertainty to its economic and financial impact. That’s when my research interest started to focus much more on uncertainty.

Q: Uncertainties abound. What are you most concerned about?

A: The economic toll of this multifaceted uncertainty: policy uncertainty has been elevated across multiple domains. Economics research shows that policy uncertainty can slow economic growth, primarily by suppressing firm investment and hiring. Another channel through which policy uncertainty can put a drag on growth is by driving up borrowing costs, as investors require compensation for bearing uncertainty.

Q: You joined the Darden faculty in 2022. Are there lessons from your time at the Fed that you apply in the classroom?

A:  Two come to mind. One thing I learned at the Fed is to always keep the big picture in mind. When addressing emerging policy challenges, it’s critical to distinguish between fundamental forces and peripheral factors and focus attention on the first-order forces that would likely drive outcomes. The other thing that comes to mind is to be thoughtful in how you deliver information. When communicating analysis to the policy committee members, who have diverse backgrounds and perspectives, clarity and deliberate framing go a long way towards enhancing impact. Applying these principles to our classroom helps me to encourage our students to share their diverse viewpoints, while keeping a focused, purposeful discussion.

There are also things I have learned in our classrooms that I apply elsewhere. Teaching at Darden has made me a better economist: instead of using jargon and convoluted technical terms that at some point start to lose meaning, teaching forces me to go back to the first principles. More importantly, effective teaching builds on trust and connections with one another. Recognizing that has brought clarity to many things in life, and the connections with our students have been a true source of joy.

Q: What’s your advice on how to manage uncertainty?

A: Anchor your decision with a structured, coherent framework that quantifies uncertainty and select strategies tailored to the specific context and institutional resources. Keep in mind that success hinges not just on uncertainty response, but also on capabilities cultivated during stable periods. The goal is to develop systematic approaches that allow us to harness uncertainty, not just survive it.

I think that the significance of having a structured approach is also to hopefully ease the psychological toll that uncertainty tends to impose on decision-makers. At Darden, we have a team of faculty with deep insights into related issues who offer diverse perspectives on navigating uncertainty, both within and outside classrooms. For example, our colleague Bobby Parmar has an exciting new book coming out, “Radical Doubt: Turning Uncertainty into Surefire Success,” which draws on cutting-edge research in neuroscience, psychology and philosophy. This rich intellectual capital in-house at Darden positions us to well prepare our students for the “uncertainty economy” ahead, from multiple, complementary perspectives.