Center for Economic Analysis

The U.S. economy, following a strong rebound from the 2020 pandemic low, is currently characterized by a state of cautious optimism mixed with high volatility and structural risks. While employment remains stable and Gross Domestic Product (GDP) continues to grow, that growth is increasingly hampered by conflicting fiscal policies and persistent inflationary pressures.

The overall health of the national and local economies over the next two years depends heavily on how several major policies and economic factors play out. While economic challenges and opportunities vary across different parts of the economy, some challenges are shared by all segments of the economy. Specifically, the U.S. national debt recently hit $38 trillion with the fastest $1 trillion dollar surge in history – exceeded only by that during the Pandemic. Similarly, consumer demand, the primary driver of the post-Pandemic economy, is plagued by record consumer debt. This makes us question whether a post-pandemic spending hangover is approaching?

Key Headwinds and Policy Impacts

The current economic outlook is shaped by several key friction points:

Fiscal Policy Pressures:

The Federal government continues to pursue an expansionary fiscal stance, characterized by spending more than it collects in revenue. This posture is reaffirmed under the “One Big Beautiful Bill Act" that further drives long-run and structural budget deficits with rising mandatory government expenditures and reduced income tax receipts under the. Tariff revenues favored by the Administration have not been sufficient to offset lost income tax revenues.

Monetary Policy Crossroads:

After successfully engineering a “soft landing” in late 2024 through aggressive rate hikes, the Federal Reserve now faces a delicate balance between restraining inflation and sustaining growth amid low unemployment and continued fiscal expansion. Persistent inflation remains a concern, as excess liquidity from earlier stimulus and quantitative easing still circulates through the economy.

• The Fed’s focus has shifted decisively from stimulating growth to managing inflation.
• Jerome Powell’s planned departure in 2026 introduces uncertainty into the continuity of current monetary policy.

Trade and Industrial Policy Shifts:

The Trump Administration’s onshoring agenda, anchored by 10% tariffs on most imports, aims to boost domestic manufacturing but risks retaliation from trading partners.

• Such tit-for-tat measures could limit access to critical inputs and raise prices on consumer goods.
• Most economists warn the tariffs could erode purchasing power and dampen consumer confidence.

Labor and Immigration Constraints:

Restrictive immigration and visa policies are reducing the inflow of highly skilled workers and prompting many international graduates to return home.

• Employers continue to face tight labor markets and skill shortages.
• Declining student visa numbers since their 2015 peak underscore a shrinking talent pipeline.

Workforce Participation Challenges:

Although unemployment remains historically low, labor force participation has weakened. Retiring Baby Boomers, declining participation among prime-age men, and flat participation among women are constraining overall labor supply—masking deeper structural challenges beneath the strong headline numbers.

Updated October 28, 2025