Thoughts on the U.S. Economy and the Year Ahead
Philadelphia Federal Reserve Bank••business
Key Points:
- The speaker expresses "cautious optimism" on inflation for 2026, noting that while core PCE inflation remained around 2.8% through September 2025, progress is evident in components like housing and services inflation, which are trending downwards.
- Tariff-induced price increases have contributed to higher goods inflation, but these effects are expected to be temporary and largely confined to goods, with prices normalizing by mid-2026.
- The labor market shows mixed signals: strong GDP growth contrasts with a slowing labor market, including reduced payroll growth and rising unemployment to 4.6%, influenced by factors such as reduced immigration, hiring uncertainty, and monetary policy restrictiveness.
- Structural changes, particularly the impact of AI on productivity
