Weekly Update: Economic Resilience

As we head towards year-end, what seems to be the most important economic story of 2025 is the collision between aggressive new trade tariffs and the massive acceleration of Artificial Intelligence (AI) investment. Tariff-related revenues jumped from $97 billion in the 1st quarter to over $267 billion three months later.¹ Despite the warnings from many economists, inflation has not been the defining consequence of tariffs. This story is not over but may not be the purported trainwreck that many feared - we shall see.

While importers have been wringing their hands over tariff duties, tech companies have been transitioning from a phase of Artificial Intelligence (AI) experimentation to massive infrastructure build-out. The "Hyperscalers"—Amazon, Microsoft, Alphabet (Google), and Meta— accounted for the lion's share of investment (approximately $400 billion in 2025,² with the goal of building the physical backbone for AI. In 2026, we will be looking for signs of excess in this space as funding for AI projects shifts from the use of existing funds (i.e., from earnings) to raising new capital (i.e., debt).

Add in the longest government shutdown in U.S. history and significant market volatility, and the defining theme for 2025 has been how the economy managed to remain resilient despite these strong economic currents. We remain constructive on continued U.S. economic growth for 2026 and will continue to keep our eye on these developing stories in addition to many other important data points, such as those related to employment and earnings.

. . .

As 2025 draws to a close, investors receive some of the final economic data metrics for the year, with the delayed U.S. employment and inflation reports coming to light in the prior week.

Cooling Inflation 

November’s inflation data showed a big surprise, as consumer prices rose far less than expected. The consumer price index (CPI)showed the annualized headline figure slowed to 2.7% last month from 3.1%. While the core CPI, which excludes volatile food and energy prices, also cooled more than expected, easing to 2.6% from 3.0%. The monthly increases also came in less than expected, rising just 0.2% for both measures, compared to estimates of 0.3%.

This data is warranted at least slight uncertainty, due to complications from the government shutdown disrupting the data collection process. The shutdown led to the cancellation of the October CPI release. The Bureau of Labor Statistics (BLS) was unable to retroactively collect a portion of the October prices; however, used some “nonsurvey data sources” to make the index calculations.

Therefore, it is possible the distortions seen in November’s report may overstate the true extent of deceleration in inflation. An additional month or two of releases may be needed to gain a clearer understanding of the trend in inflation, specifically of key underlying factors such as price movements in shelter, energy, food, or more generally goods and services.

Market consensus indicates inflation may remain rangebound in the beginning months of 2026, above the Fed’s 2% target, whilst showing improvements from 2025. Shelter costs remain a large portion of inflation, and ongoing moderate decreases in housing are expected to encourage softening in services inflation.

Low Hiring/Low Firing Labor Market 

The November non-farm payrolls reportshowed mixed results. Similar to the CPI report, the BLS released the delayed October and November employment figures. The U.S. economy added 64,000 jobs in November (more than expected), after posting a 105,000 decline in October. The payroll drop in October was widely anticipated after a surprise increase of 108,000 in September, along with influences from the shutdown. Much of the October decline stemmed from a steep fall in government employment as deferred layoffs instituted earlier this year took effect.

Jobs added remain concentrated in healthcare, while transportation and warehousing recorded job losses.October’s unemployment rate was unable to be calculated by the BLS during the shutdown, but the November release showed the unemployment rate rose to a new cycle high of 4.6%. The 0.1% rise in the unemployment rate was largely attributed to the increase in the labor force. The labor force participation rate edged higher to 62.5%.

The job climate continues to display a low-hiring, low-firing state.

December’s numbers (January’s release) for employment and inflation are expected to hold more weight, due to increased clarity in the data. Fed Chairman Powell cautioned against over-interpreting November’s figures, given the disruptions in data collection. Overall, the markets are encouraging of the solid economy with participants still expecting a hold at the January policy meeting, while slightly increasing expectations of a cut in March.³

[1] https://fred.stlouisfed.org/series/B235RC1Q027SBEA

[2] https://www.statista.com/chart/35046/capital-expenditure-of-meta-alphabet-amazon-and-microsoft/

[3] FedWatch - CME Group

Upcoming Reports

Monday: N/A

Tuesday: PCE Price Index, Housing Starts, Building Permits, GDP, New Home Sales, CB Consumer Confidence

Wednesday: Holiday - Christmas - early close, initial and continued jobless claims

Thursday: Holiday - Christmas

Friday: N/A

Market Performance Stats

Aviance Capital Partnersis a Naples, FL-based registered investment advisor with advisors in Naples and Orlando. We provide professional wealth management,financial planning, and investment strategiessince 2009. Our financial advisors are fiduciaries, offering services such as retirement income planning, tax-efficient investing, and customized portfolio management, all designed to help clients achieve their long-term financial goals.

Whether you're preparing for retirement or seeking a tailored investment management strategy,Aviance’s wealth advisorsin Naples and wealth advisors in Orlando provide financial planning and investment management services to investors in all of Florida and beyond.

Thank you for reading. If you have any questions or concerns, or would like to speak with a member of our team, please click the button below to reach out to us. We would love to hear from you!

. . .

The markets reacted positively to the Fed’s interest rate decision and commentary on the economy and policy outlook, along with news of resuming Treasury Bill purchases to support liquidity in short-term money markets. The central bank concluded the final meeting of the year by delivering a third straight 25 basis-point (0.25%) cut to the federal funds policy rate, which was widely anticipated, and announced updated projections for economic indicators and the policy outlook.²

The vote, as anticipated, was far from united. Two FOMC members, Jeffrey Schmid (President of the Kansas City Fed) and Austan Goolsbee (President of the Chicago Fed), expressed concern over elevated inflation and voted against a rate cut. Whereas, Stephen Miran (Fed governor) supported a steeper cut of 50 bps (0.50%). Despite the three opposing votes, the majority (nine others) voted in favor of a 25 basis-point reduction, citing concerns over weakness in the labor market.

Hiring, as shown in the ADP data and nonfarm payrolls revisions, has slowed in 2025³, while employment, as shown in initial and continuing jobless claims, has increased in 2025⁴. This, accompanied by a loss of quality Federal data during the government shutdown, led policymakers to justify voting for another rate cut to protect against risks of further softening in the labor market.

Fed Chairman Jerome Powell took a cautious stance in his press conference, indicating the decision was a “close call” and that the central bank is “well positioned to determine the extent and timing of additional adjustments based on the incoming data, the evolving outlook of the balance of risks.”⁵ Powell’s comments and subtle changes to the FOMC press statement suggest the central bank is preparing to pause its easing cycle.

The central bank’s “dot plot” projections, which anonymously illustrate members' expectations, shows the key policy rate at 3.4% in 2026 and 3.1% in 2027, indicating a quarter of a percentage point cut each year. The forecasts mimic the projections from last quarter’s update. The outlook would bring the key policy rate to a neutral range of 3.00 – 3.25%, where it is expected to remain unchanged in 2028, according to the dot plot.

The economic outlook showed members lowered their expectations for interest rates, suggesting the upward inflationary pressures from tariffs will likely be temporary. The dot plot shows a gradual decline in inflation closer to the Fed’s long-term target of 2.0%, with the personal consumption expenditures (PCE) inflation index declining to 2.9% at the end of 2025 and 2.4% at the end of 2026. The committee also gained optimism on economic growth, slightly raising expectations from the prior release.

In addition to the rate reduction and forecast updates, the central bank announced plans to resume Treasury Bill purchases, starting around $40 billion each month until April, to support liquidity in money markets. Powell and other officials implied these efforts are a technical adjustment, not a shift in monetary policy, although some investors believe the effect will likely resemble similar results to quantitative easing.

Traditional quantitative easing involves large purchases of longer-maturity securities, with the aim of lowering long-term yields and stimulating economic activity. Whereas the current plan focuses on short-term treasury bills to increase system reserves, ease borrowing conditions/costs, increase market stability, and gain control of short-term interest rates.

For Treasury bill yields specifically, it is likely the Fed’s purchasing program will place downward pressure on short-term yields, all else equal. Therefore, given the current backdrop, we foresee returns on cash equivalent or ultra-short bond investments such as money market funds, CDs, and Treasury Bills continuing to move lower in the year ahead. If longer-term yields remain stable and elevated, this could potentially steepen the yield curve. As addressed in the outlook, perhaps incentivizing investors of such securities to step out a bit on the maturity and or on the credit spectrum in search of better yields.

[1]  https://media.ycharts.com/charts/

[2]  Federal Reserve issues FOMC statement

[3]  ADP® Employment Report

[4]  Continued Claims (Insured Unemployment) (CCSA) | FRED | St. Louis Fed

[5]  The Fed - December 9-10, 2025 FOMC Meeting

Upcoming Reports

Monday: NY Empire State Manufacturing Index

Tuesday: Nonfarm Payrolls - Average Hourly Earnings, Participation Rate, Unemployment Rate, Manufacturing PMI, Services PMI

Wednesday: Fed Waller Speaks, FOMC Member Williams and Bostic Speaks

Thursday: Consumer Price Index (CPI)

Friday: Personal Consumption Expenditures (PCE), Michigan Consumer Sentiment and Expectations

Market Performance Stats

Aviance Capital Partnersis a Naples, FL-based registered investment advisor with advisors in Naples and Orlando. We provide professional wealth management,financial planning, and investment strategiessince 2009. Our financial advisors are fiduciaries, offering services such as retirement income planning, tax-efficient investing, and customized portfolio management, all designed to help clients achieve their long-term financial goals.

Whether you're preparing for retirement or seeking a tailored investment management strategy,Aviance’s wealth advisorsin Naples and wealth advisors in Orlando provide financial planning and investment management services to investors in all of Florida and beyond.

Thank you for reading. If you have any questions or concerns, or would like to speak with a member of our team, please click the button below to reach out to us. We would love to hear from you!