Our economic outlook for the United States

The U.S. economy has remained resilient despite significant economic policy uncertainty through the first half of 2025. The labor market has gracefully decelerated so far this year and remains in a balanced position. It has averaged roughly 150,000 jobs per month over both the previous three months and the last year, highlighting an uncommon period of stability. Fiscal policy is now more certain with the recent passing of the One Big Beautiful Bill Act. We presently expect a modest boost to growth in 2026 in light of these circumstances, with deficit-impact concerns remaining a key focus of market participants.

Inflation data has continued to come in lower than expected by market participants. Our analysis finds that the primary cause has been the “frontrunning effect.” Despite a sharp rise in announced tariff rates, substantial import frontrunning early in the year has muted the inflationary impact and will likely continue to do so throughout 2025. However, the June Consumer Price Index report indicated accelerated increases in core goods prices, suggesting that companies are beginning to pass tariff costs on to consumers. We expect a modest pickup in core goods inflation in the second half and see the core Personal Consumption Expenditures price index ending 2025 around 3% year-over-year. It is worth noting that the frontrunning effect is not a free lunch—it has muted the near-term impact of increased tariffs but will modestly prolong their effects into 2026.