Economic Update Fall 2025

Despite concerns that elevated tariffs could spark a recession, the U.S. economy continues to grow steadily. So far, no downturn has emerged, and tariff-driven inflation appears to be a one-time event. GDP expanded by 3.3% in Q2, with the Atlanta Fed’s GDPNow model forecasting 3.9% growth for Q3. Recent data reflects solid real growth, though job creation remains modest. Historically, fiscal stimulus combined with monetary easing from the Federal Reserve has helped the economy sidestep recessions.

Labor Market & Consumer Strength

- Unemployment rose to 4.3%, a level still considered full employment and supportive of consumer spending.
- Consumer spending, which drives roughly 70% of U.S. economic activity, depends heavily on employment stability.
- In response to labor market softening, the Federal Reserve is cutting interest rates, a move that typically boosts corporate investment, hiring, and consumer purchases—especially for big-ticket items like vehicles.
- The One Big Beautiful Bill Act includes retroactive tax cuts for 2025, with refunds expected in early 2026, further supporting household finances.
- Household debt service payments remain historically low as a percentage of disposable income, according to FRED data, indicating healthy consumer balance sheets.

Inflation & Monetary Policy

- Inflation remains stubbornly above the Fed’s target, even as employment weakens.
- The Fed is easing rates cautiously, constrained by inflation that hasn’t declined enough to justify aggressive cuts.
- September CPI rose 0.3% month-over-month, with annual inflation at 3%. Core CPI (excluding food and energy) increased 0.2% monthly and 3% annually—both slightly below expectations.
Money Supply & Commodities
- M2 money supply is up 4.7% year-over-year, a pace consistent with disinflation rather than excess liquidity.
- Commodity trends support this view: oil prices have declined, and broader commodity indices are flat compared to last year.

Shelter Inflation Trends

- Shelter remains the stickiest component of CPI, but signs of easing are emerging:
- Case-Shiller home price growth is below 2% year-over-year. Mortgage applications have risen in October.
- Apartment List’s Rent Index is now negative, down 0.8% from a year ago.
- Since shelter accounts for nearly 40% of core CPI, its cooling trend suggests broader inflation relief may follow—consistent with historical patterns where headline inflation lags shelter.