December 2025 Commentary: Takeaways from Anirban Basu’s Economic Update

By Daniel McGarvey, CFA on behalf of Stonebridge Financial Group advisors

In November, Stonebridge Financial Group was pleased to host economist Anirban Basu in Harrisburg as he presented an economic update. Here are key takeaways from his presentation.

• The Federal Reserve’s target for inflation is 2%, but we have not hit that target rate for over four years
  • Although inflation has fallen from its 2022 high, achieving the 2% target has been illusive with the most recent year-over-year Core Consumer Price Index (CPI) measure at around 3%. Since May of 2020, the total price increase for all items is 26.8%, with energy and transportation service prices increasing by over 50%.

• Certain policies of the current administration could be inflationary
  • Tariffs, including those on imports from all countries and those on target goods (such as 50% on steel, aluminum, and copper), can lead to price increases which are passed on to consumers. The One Big Beautiful Bill Act is projected to add $3.4 trillion to the national debt over the next 10 years, and if its tax cuts are pushed back into the economy, they could heat up activity. Mass deportations can also be inflationary by truncating the size of the labor force.

• Despite the headwind of higher borrowing costs, the economy has held up well
  • The most recent Gross Domestic Product (GDP) measure of over 3% suggests a strong economy, and the strength of the consumer has been at the heart of that momentum. Spending on both retail and services has been driving higher, although that strength has primarily come from the high earning consumer. Lower earning consumers are struggling, and there are signs that the upcoming third quarter GDP release could be weaker.

• The U.S. as a whole has never been wealthier, but the wealth is not well distributed
  • Total household wealth is now $167 trillion, compared to $20 trillion in 1990. However, the top 10% now controls about two thirds of the assets, and the bottom 50% only controls 2.5%.

• Economic softness has primarily been seen in the job market
  • For the first time in years, we have more unemployed people (7.4 million) than we have job openings (7.2 million), and job creation has been quite meager. This is not catastrophic since there has been essentially no labor force growth this year.

• For there to be a full-fledged economic downturn, consumption would have to weaken
  • Consumers have now fully drawn down their excess savings that were built up during the pandemic years, and they continue to face high and rising prices. As a result, credit card debt and delinquencies are rising notably.

• Real estate continues to face headwinds
  • Due to relatively high mortgage rates (currently around 6.2% for a 30-year), limited inventory, and all-time high prices, homebuyer demand has cooled significantly. Mortgage applications are down about 70% from their 2021 peak, and the percentage of the population that moved in the past year has plummeted to 11.8%. Architecture billing figures are also depressed.

• Sentiment is weak
  • The Michigan Consumer Sentiment Index is as low as it has been in decades, largely because of affordability concerns, and only 13% of small business owners believe the next three months are a good time to expand. Small businesses create the bulk of new jobs in America, and their hiring has been slowing.

• Economic growth could be slower next year
  • Inflation is poised to make a comeback, and long-term rates are likely to stay elevated for longer, in part because of tariffs. Many consumers are exhausted because of increasing prices, and their circumstances could worsen.

Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.