Notes on the Economy – Q4 2025 Summary

A puzzle with missing pieces

Piecing together economic data to determine the actual state of the economy and the direction in which it is headed is a more challenging puzzle than usual—because pieces of the puzzle are missing. This is due to the recent federal government shutdown which impeded data collection and delayed its publication. For example, initial estimates for third-quarter GDP and its components, which the Bureau of Economic Analysis (BEA) originally scheduled for late October, have been rescheduled for December 23.

When published, the data will likely show annualized third-quarter real GDP growth of 2.9%—down from second-quarter growth of 3.8%, but above the first-quarter decline of 0.5%. Because real GDP does not include foreign production, real GDP data in 2025 have been distorted by swings in imports. Imports were accelerated by domestic purchasers in the first quarter so as to front-run the imposition of anticipated tariff increases. Imports advanced an annualized 38.0% in the first quarter, but fell an annualized 35.3% in the second quarter, and were probably down about 4.4% in the third quarter. That restrained growth of real GDP in the first quarter while boosting it in the second and third quarters.

U.S. tariffs have increased in 2025, but the process has not been orderly. Tariff rates have been announced, only to be subsequently changed and effective dates modified. So far, the U.S. government has struck thirteen deals providing trade or benefits unique to each counterparty. As the number of trade deals has increased, global economic growth momentum has improved. The global Composite Purchasing Managers’ Index (PMI) reached 52.9 in October, well above the expansion/contraction threshold of 50.0.

HEADLINES – What’s important

1. Inflation Is Still Sticky – Upward price pressure is widespread. Even after stripping out the effect of tariffs, the annual rate of inflation is running at around 2.3%-2.5%, still above the Federal Reserve’s (Fed) 2.0% target.
2. The Fed’s Rate Cutting Is Not Yet Over – Although the future pace and timing of interest rate cuts are still debated within the Fed, most Fed policymakers appear convinced that at least a few more cuts are in order.
3. The Bear Market Recovery Has Become an Artificial Intelligence (AI)-led Market Rally – Debt markets are fueling an AI-related capital expenditure boom, which may not end well in the long run. Global portfolio diversification remains an important consideration, with focus on U.S. domestic small- and mid-caps and foreign developed markets as counterweights to U.S. large-caps.
4. The Safe-haven Attraction of Precious Metals Remains Strong – Geopolitical conflict, contentious U.S. politics, sticky inflation, and high liquidity may well remain in place during 2026. As traditional safe havens, gold and silver may benefit the most.

LOOKING AHEAD

Tariff front-running has ended. A sizable portion of the increased import demand due to front-running went for capital goods and consumer durables, which are typically relatively high-cost and infrequently purchased items. It is likely that most foreign products acquired from tariff front-running have been put into service. Monthly import volumes are now below mid-2024 norms and are trending downward.

Economic policy is expansionary. The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, is definitely pro-growth. OBBBA’s tax relief measures and increased security expenditures are significant. Through 2027 the boost to economic growth they provide will likely exceed the restraining influence of OBBBA’s Inflation Reduction Act rescissions, entitlement reductions and other outlay curtailments. Concurrently, the Trump administration appears to be making a serious effort to reduce regulatory burdens on business. Meanwhile, though they remain cautious, most Fed policymakers appear to favor a downward bias to future changes in the federal funds rate.

Global economic growth is likely to slow only marginally. The International Monetary Fund’s (IMF) October World Economic Outlook projects global GDP growth will decrease from 3.3% in 2024 to 3.2% in 2025 and 3.1% in 2026. The IMF sees output growth remaining stable in the advanced economies with GDP increasing by 1.6% in both 2025 and 2026. In the developing economies, growth is projected to slow from 4.2% in 2025 to 4.0% in 2026. The slowdown is driven by the two largest countries in the bloc, China and India.

*The information contained within this edition of the Notes on the Economy Executive Summary is based on data released as of Nov. 20, 2025.

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