As we look ahead for the next 12 months, the U.S. economy faces a transition period marked by moderating growth, elevated policy uncertainty, continued stubborn inflation levels, and the delayed effects of earlier policy changes. While the foundation remains solid, many economists and forecasters project growth slowing toward a below-trend pace.

Consumer and business spending

Consumer spending has remained resilient even though consumers continue expressing growing pessimism for the future. This is a continuation of the “vibecession” versus what they are actually doing. Business spending may continue to be a mixed contributor to economic growth. Spending on technology, especially productivity enhancing technology, will continue to be a positive contributor but construction activity will continue to face challenges.

Fiscal and monetary policy

The projected $3 trillion stimulus resulting from the One Big Beautiful Bill Act (OBBBA) is front loaded over the 10 year span of the legislation. As a result, this should help offset negative impacts from other fiscal policy actions. Monetary policy has shifted from neutral to an easing trend.

If the reduction in the overnight borrowing rate continues, both consumers and businesses with variable rate loans tied to short-term interest rates should benefit. Without progress on inflation, the debt and resolution over the uncertainty of Federal Reserve independence, long-term interest rates will most likely continue to be volatile, but range bound.

Tariffs

Tariffs are a tax, and businesses are gradually adapting to the new tax regime. The threat for small businesses is more related to the cost and burden of complying with the rules and regulations surrounding tariffs. From a simplistic standpoint, every dollar of revenue that the government earns from tariffs is a dollar paid by businesses and consumers and a dollar less available for spending.

Conclusions

The economy is poised for positive but slower growth over the next 12 months. Looser monetary policy, tax stimulus and relatively stable labor conditions should support expansion, while inflation, trade uncertainty and volatility pose ongoing threats to growth. Policymakers, businesses, and consumers will be challenged to adapt and navigate these dynamics to sustain the momentum of growth.

Steve Scranton, CFA, is an economist for Spokane-based Washington Trust Bank.