Inside the Outlook: SIFMA’s 2025 End-Year Economist Survey

In this episode of The SIFMA Podcast, SIFMA President and CEO Kenneth E. Bentsen, Jr. reflects on the recent Member Briefing where he was joined by Scott Anderson, Ph.D., Chief US Economist and Managing Director at BMO and Co-Chair of the SIFMA Economist Roundtable, and Heidi Learner, Managing Director, Director of Research at SIFMA. Together, they unpack key takeaways from SIFMA’s 2025 End-Year Economic Survey.

Transcript

Edited for clarity

Ken Bentsen: Hello, and thank you for joining us for this episode of the SIFMA Podcast. I’m Ken Bentsen, president and CEO of SIFMA, and your host.

Earlier this week, SIFMA held a briefing on the key findings from the latest SIFMA Economist Roundtable Survey, conducted after the Federal Open Market Committee’s November announcement. The survey captured insights from chief US economists at more than 20 leading global and regional financial institutions. I was joined by Scott Anderson, PhD, chief US economist and managing director at BMO, and co-chair of the SIFMA Economist Roundtable, as well as Heidi Learner, SIFMA’s new managing director, director of research to discuss the results from the survey and their outlook on the capital markets. Comments and questions are welcome. Listeners can reach us at digital@sifma.org. Now, let’s tune in to the briefing replay.

So, Scott, I’m going to start with you. Again, thank you for being here. Let’s start with the economic outlook. The survey shows the median forecast for Q4 over Q4 2025 real GDP growth rate to be 1.8%, and 2.2% in 2026, both above the mid-year survey results. How would you characterize the current momentum of the US economy as we head into 2026?

Scott Anderson: Great, Ken. So this is the second-half survey, we did one back in June, and we’ve definitely seen improvement in the economic outlook and the estimates for economic growth this year and next year. Roundtable participants generally raised their forecast, both for 2025 and 2026. Back in June of 2025, the forecast was only 0.9. As you mentioned, Ken, it’s now 1.8. And for 2026, we’re now at 2.2 on the median, versus 1.9 six months ago. And there’s a number of reasons for that.

We’ve generally seen a re-accelerating in US GDP growth and spending, second and third quarter GDP rebounded strongly. We saw a somewhat more resilient real consumer spending than many economists thought we’d see post-Liberation Day tariffs. So I think some of that can be attributed tariff front-running and fears of higher inflation. If you think prices are going to go up for things like cars or TVs, or other big ticket items, and you were planning on buying those anyhow, you might go ahead and make those purchases. So we did see a strong rebound in motor vehicle sales. We also had the expiration of the EV tax incentives at the end of September, so a lot of people were buying a lot of electric vehicles. I sit out here in the Bay Area of San Francisco, and I think the Tesla dealership out here was pretty much sold out by the end of September.

And of course, we’ve had a real robust equity market rebound. I don’t think any economist back in June thought the stock market would rally close to 40% from the April lows, so we’ve seen that really trickle into optimism and spending power from higher income households specifically. So we’ve definitely seen those positive wealth effects playing out.

And then I think the second element is the AI investment boom. We’re definitely seeing … There was not even a stutter-step in AI investments this year. And it looks like, if the pledge investments for next year come through, this is still I think a pretty important upside risk for overall business investment in the United States. We’re seeing I think this year we’re expecting one of the strongest business equipment in real term spending growth rates since, you have to go all the way back to 2012. So single-handedly it’s really being driven by these AI data centers and the build out we’re seeing there, and it really continued unabated and accelerated despite the uncertainty in the economy and the tariff risks.

We’ve also seen a ratcheting down I think of the trade risks and trade uncertainty. The direction of travel on tariffs since April 2nd, Liberation Day, is the tariffs have actually come down for many of our big trading partners. The average effective tariff rate in the United States has moved lower. And I think thankfully we’ve seen very little retaliation on the United States from the rest of the world. So because of that, the negative impacts on growth, consumer spending, business investment, even inflation have been somewhat less than some economists were estimating back in June, and corporate profits have held up somewhat better as well. So I think those are some of the main elements.

And then as we look into 2026, we do think fiscal policy is going to take more of a center stage. What I’m hearing from our clients and customers is the tariff are less of a concern than they were just a few months ago, it’s starting to move down their lists of concerns. We’re expecting some more spending power coming from the One Big Beautiful Bill and the impacts on consumer and business investment spending next year from that. Of course, we need the labor market to hold up and household finances to hang in there. That’s part of the reason why I think the committee, the roundtable has a little bit of acceleration in the forecast for next year.

Ken Bentsen: So as you mentioned, the tariffs, consumer spending. I think that survey also cited stronger productivity gains. But the survey also cited some concerns, right? Concern about possible equity market pullback, inflation, which you mentioned, and you just noted a potentially weaker labor market as being downside risk. How do these factors shape your expectations for growth moving forward?

Scott Anderson: Well, in the roundtable as well, I think the risks, both on the upside and downside, are pretty familiar for most economists. And I would probably characterize the risks, on the upside and downside, as fairly well-balanced right now, so I wouldn’t really over-rate the downside risks on the upside risks.

So in upside risks, I mentioned lower tariff rates. And one thing I didn’t mention yet is we might get a Supreme Court decision on whether they’re going to strike down the IEEPA tariffs, the International Economic Emergency Powers Act tariffs. Those are the reciprocal tariffs that he announced on April 2nd, as well as some of the trafficking tariffs on Canada and Mexico due to fentanyl. We did have a hearing just a few weeks ago in the Supreme Court on that decision. It is on an expedited schedule, so we do expect a ruling on that maybe even as soon as the end of this year or early next year. That could have a significant impact on the average effective tariff rate in the United States, bringing it down significantly. My estimate is right now we’re around 17% on the average effective tariff rate, and if these at least temporarily get struck down by the Supreme Court, it could lower the average effective tariff rate to closer to 6%.

Now, they also have to deal with how does refunds happen? If people paid tariffs over the past year, will they get refunds? How soon would they get those refunds on the tariffs that they’ve paid? We could have somewhere in the neighborhood of 125 to $150 billion worth of tariff revenue to return to folks if that were to happen. Now, the Supreme Court, based on the discussion at the Supreme Court, they may not actually give some of that money back. They might just strike it down, but not actually turn the money to folks. So there’s a lot of uncertainties around that, but lower tariffs is certainly an upside risk.

Stronger productivity, as you mentioned, Ken, is another big one. Economists are waiting for this AI boom to boost some of the productivity numbers. And our roundtable is actually fairly optimistic about productivity for this year and next year, estimating 1.9% productivity growth in 2025, and 2.1 for 2026.

And then I mentioned just the consumer in general. I always say never underestimate the US consumers’ willingness and ability to spend. If we don’t see widespread layoffs forming early next year, I think consumer could remain fairly resilient, especially if it gets some relief on the inflation front. Of course, don’t forget the Federal Reserve is expected to continue to cut interest rates, so moving towards a more neutral policy stance by the end of next year. So all those things, it could favor some improvement in financial conditions.

On the downside, as you mentioned, Ken, equity market pullback is definitely top of mind. I think the Economist Magazine had done their front cover last week, are we in a bubble sort of article. Our committee is concerned that we will see some pullback in equities within the next 12 months. I think more than half said they expected at least a 10% correction in equity prices within the next 12 months, and even 25% looking for about a 20% or more correction.

And then of course, the possibility if we did an acceleration in growth, we don’t see a lot of relief on inflation. Do we need to have a much slower growth environment to get inflation down to the Fed’s 2% target? So I think there is some concern on the committee, the roundtable about the possibility that inflation could remain stuck at around 3%, or somewhat higher than that.

And then I guess the others of course, the other side of the Fed’s mandate which is a weaker labor market, as you know. That’s one area, we talked about the positive spending environment. But the labor market data looks more recessionary or stagnant. We’re basically seeing almost zero privacy sector job growth over the past three months. The ADP data, only 3000 jobs a month on average over the past three months being created. We’re in a data vacuum right now because of the record government shutdown, record 43-day shutdown and the government saying, the BLS saying that they’re not even going to release October unemployment rate number.

And the Fed, when it comes to the December FOMC decision, they’re not likely to have any more information on, really official information on the labor market or inflation before the decision in December so it’ll be interesting to see. The September jobs data we got last week will probably be one of the last official views they’ll have of the labor market before then. So a lot of things to take into consideration.

I would mention also, Ken, just briefly. The government shutdown, everyone is asking me what the economic impacts of that are likely to be and we definitely think it’ll leave a mark in fourth quarter GDP growth. The median estimate from the roundtable is a 1% annualized growth rate in the fourth quarter. The good news is we think most of that growth will return in the first quarter, with the committee estimating 2.2% growth in the first quarter. So the year-over-year growth forecasts really haven’t changed a whole lot based on the shutdown.

Ken Bentsen: Right. Let me turn to Heidi. Heidi, thank you for joining us today. And Heidi, as I mentioned, recently joined SIFMA as our managing director, director of research, overseeing SIFMA’s research and insights offerings, as well as the Economist Roundtable and our Directors of Research Roundtable. So we’re glad to have you on today.

Looking at the top line GDP expectations and the shift in upside and downside risks in the mid-year survey, what themes stood out to you as most impactful for understanding the economy’s 2026 outlook?

Heidi Learner: Very much, Ken. I’d say there are a few takeaways with regard to the improvement in both growth and inflation that we saw in our most recent survey versus H1. I would note that year-end Fed funds for 2026 moved from 3.63% in our first-half survey, to 3.25 in our current survey. So part of the improvement that we are saying is coming from a Fed that our participants see as being more aggressive than they had previously expected.

I would say another factor is certainly something that Scott already highlighted, which is the extent to which concerns over tariffs have faded. That’s not to say that trade policy is no longer important, it’s just that it’s no longer front-and-center and most dominant factor in most of our participants’ outlooks.

I would say lastly, probably the increased concern over both the labor market and equity markets, which Scott also noted. On the labor market side, while the outlook for the unemployment rate is broadly unchanged in our current survey, again versus the survey we conducted earlier in the year. Instead of worries over the aging of the labor force, it’s really a concern over a reduction in immigration and the consequences on the labor supply that is really front-and-center. 70% of our participants cited this as their top concern.

And just piggybacking on the figures that Scott mentioned, with more than half of our respondents seeing a 10% or greater chance of an equity market correction between now and year-end December, I want to highlight the impact of the household wealth effect and the transmission mechanism that we typically see from equity markets into consumer spending. So while the outlook for consumer spending is robust and we do see increases for both 2025 and 2026 based on our participants’ responses, I would note that those concerns about equity market volatility and a downturn in prices is clearly weighing on concerns because the forecast for personal consumption into 2025 and 2026 are both weaker than what we saw in 2024. So I’d say those are broadly the concerns that participants have noted and those that represent a real swing from what we saw earlier in the year.

Ken Bentsen: Great, great. I just remind folks, we have one question and we’ll get to that when we get towards the end. But again, if you have questions, please go to the Q&A tab and type your question in.

Scott, the greater optimism characterized expectations for economic growth, with a third of survey participants noting an improvement in their 2026 outlook, and only half as many reporting a deterioration. But the survey respondents now view recession risk as lower than earlier this year, with 70% putting the probability below 30% or below. What’s your assessment of the recession risk in 2026, and what factors do you see either mitigating or heightening that risk?

Scott Anderson: Yeah, great question, Ken. So as you know, recessions are nonlinear events. So sometimes things look pretty good, and then all of a sudden they don’t pretty quickly. That’s why economists are watching the labor market really carefully right now, because if we did see a quick deterioration there, that could change the calculus quite a bit.

But I agree, I think the recession risks have come down since Liberation Day on April 2nd. We had the risk at about 35% back then, and right now I’d put it at close to 30%. So I think it’s still elevated by normal levels, usually it’s around 14, 12 to 14 percent, so it is somewhat elevated still. I don’t think we’re completely out of the woods yet.

A couple of things that worry me a little bit about the strength and sustainability of the expansion is just how narrow the current expansion is right now. So we talked about the strength in consumer spending, but it seems like it’s all higher income households, maybe tied to the strong equity market gains and the investment boom. So all this seems to be tied into the equity wealth effects, and so if we did see a significant downturn in stocks, it could upset the applecart in terms of the outlook here. So that’s one of the things that we’re watching very carefully.

But again, I think the fact that tariff uncertainty has started to come down, the Fed is now cutting rates. They’ve quite twice already in September and October. It’s a close call for December, but we’re leaning out our shop for another cut at the December meeting. So it’s a pretty good start to the year in terms of the Fed rate cuts. You might not see it showing up as much on the long end of the rates, we can talk a little bit about that in a few minutes. But from the bank’s perspective, lower short term rates will help borrowing costs for a lot of our business customers. A lot of their rates are tied off of SOFR and other short term rates, and so they’ll benefit from the Fed continuing to cut here.

Ken Bentsen: And you’ve mentioned a couple of times that tariffs went from, and Heidi, tariffs went from being the number one concern, now it’s mitigated dramatically in the survey. It’s mitigated in survey. Maybe delve into why you think that is, and also, again, focusing on the labor force growth slowing down, that’s moved up to the forefront. Between those things, what do you see as the biggest risk heading into the next year?

Scott Anderson: So the tariffs, there was a lot of worry about the tariffs causing a significant amount of inflation. But what I’m hearing … Well, certainly the direction of travel on tariffs has been in the right direction, somewhat lower tariff rates. We never got the 100%-plus tariffs on China, there was a bit of a tariff truce there, an agreement with Xi recently, so that takes some of the highest tariff rates off the table.

I also think the way companies have looked at the tariffs, most of the companies that I talk to, CEOs, CFOs, boards … The fact that there’s so much uncertainty about where the final tariff level would land and how long it would be in place, and also concerns about how much they could raise prices in this sort of an economic environment with a slowing labor market, worries about losing market share, price sensitivity of consumers have all played a role I think this year. So we have seen less pass-through of the tariffs that some economists feared back in April. Most estimates I’ve seen is the pass-through has been around 50% or a little bit higher than that so far. Some of that’s being passed on to supply chain, foreign suppliers. Some of that’s being eaten by company profit margins.

Now, we don’t think the pass-through is done. I think we will see more pass-through in the fourth quarter and into early next year. But what I’m hearing is it’s more of a piecemeal approach, that companies are not passing the full amount of the tariffs on right away and they’re eating some of that in their margins for the moment. One thing people worried about early when the tariffs were announced was that you’d see maybe a $15,000 increase in SUV prices, for example, because of the tariffs of motor vehicles. And instead, what we’re probably going to see is something like the 3, 4000 increase next year, and then maybe a little bit more in the months ahead. So it’s more of a piecemeal approach, it’s not a one-time shock.

So the good news for the Fed is, I think if you look at our forecasts as well, is that the overall inflation rate doesn’t rise quite as high as some of those estimates at mid-year. We’re going to probably be around 3% still, even on core PCE, at the end of this year. But we probably won’t move above that, and there’s a chance we move lower, slightly lower next year on inflation.

So my concern is primarily the labor market, the narrowness of the expansion. It really looks like it’s coming just from … The job growth right now seems to be coming mostly from healthcare, and to some extent leisure and hospitality, the bounce back from the pandemic. But beyond that is very, very weak. A little bit of government job creation at the state, local level, but not a lot to really hang your hat on. That’s why, when you look at a lot of the consumer sentiment surveys, consumer confidence surveys, you see consumers very concerned not only on the inflation front, but how safe is their job going forward. So I would put the risks more on the downside on the labor market and I think the Fed is right to start cutting rates here.

Ken Bentsen: So let’s shift to inflation. You mentioned that although place for PCE above the Fed’s 2% target at 2.9% Q4 2025 over Q4 2024, and then 2.5% on Q4 ’26 over Q4 ’25. 90% of the respondents to our survey nonetheless expect inflation expectations to remain anchored. Do you think the Fed is underestimating the structural stickiness of inflation?

Scott Anderson: Yeah, that’s a great question, Ken. I think possibly, you can’t certainly rule that out. I think back to the 1970s, the last time we had stagflationary environment in the United States, and we had a decade of elevated inflation that took Paul Volcker and double-digit interest rates to really bring the inflation demon under control.

As you know, Ken, even though the Fed’s been moving inflation down from the highs we saw several years ago, we’re now five years out of the Fed missing their 2% target. So there is some worry on that [inaudible 00:22:50] among several members and voters, that they can’t take the inflation expectation well-anchored for granted and they need to continue to keep one eye on prices. So I do think there’s some members, and there was some members on our roundtable just like the split you’re seeing in the FOMC or seeing some split among roundtable members in terms of their concern about high inflation.

And I think economists have gotten a little bit more concerned about inflation just being more prolonged. Maybe not the high rates that we were forecasting back in April, but the fact that we might not see a lot of improvement next year, especially if the economy re-accelerates, we don’t get a productivity boom or resurgence that keeps inflation under wraps. So it’s going to come down to continued softening in the labor market and that would help to continue to bring down wage pressures, but it is in a very open question right now of how rapidly that’s going to happen.

Ken Bentsen: Well, and of course the PCE is apparently the Fed’s preferred gauge, but we’re also seeing CPI. I think right now forecasting at 3.1% year-over-year, and dropping modestly by Q4 ’26 to 2.8%. How does that shape your expectations by another gauge?

Scott Anderson: Yeah. So like I said, a little more concerned. I think the direction of travel on inflation is okay and I don’t think the Fed has to wait for 2% inflation to start to normalize rates. I do think monetary policy is still restrictive, so the question is how rapidly will they be able to cut rates next year, not whether they can or not. As long as we don’t get a resurgence of tariffs or other shocks that could push prices up.

One reason why inflation forecasts have come down isn’t just the drop in tariff rates, but it’s also the fact that energy prices have moved down a lot. If you look at crude oil futures prices, they’re down about 18% year-to-date. So that helps keep a lid on overall inflation. I don’t know if oil’s going to keep going down, I don’t think it will at these low levels, rate levels. But that’s certainly helped the Fed out a little bit on the overall inflation front.

Ken Bentsen: Right. I see Brent’s down again today. The story also found the aggregate demand or domestic demand has replaced trade policy as the top factor in the outlook for core inflation, with 60% of respondents seeing a significant economic slowdown as necessary for inflation to return to target. And I think you’ve noted that consumer spend has proven to be more resilient than expected. How does that impact the return do you think to target inflation?

Scott Anderson: Yeah, that’s the 800-pound gorilla. Can inflation come back down to the Fed’s 2% target without a significant weakening in the labor market? The only way that could really develop is if we did see a big pickup in supply and productivity, that could help reduce those inflation pressures.

Remember, we’re also seeing a tightening of immigration in the United States and the slowdown of population growth, so labor supply has remained quite tight in some sectors of the labor market. And economists, us included, think it’s probably still subtracting a tenth or two off of GDP growth this year from the tighter immigration labor supply growth.

So what the Fed’s really trying to figure out here is how much of the slowdown in hiring and in job growth is due to weaker demand, and how much is due to the new normal in terms of in-migration and labor supply. So we do think the break-even job growth has come down significantly. It’s probably been around a little bit above 150,000 jobs a month on average in recent years, and now we think it’s probably close, the committee believes, the roundtable believes it’s closer to 55,000 jobs a month right now as a break-even for the unemployment rate. So definitely those 100, 200,000 job reports every month, probably a thing of the past right now unless we see a shift in our immigration policies.

Ken Bentsen: And Heidi, your team monitors inflation dynamics closely. From your vantage point, what do the survey’s findings tell us about the underlying sources of pricing pressure? And how should market participants interpret the shift towards domestic demand as the primary driver of core inflation?

Heidi Learner: I think one of the most notable takeaways is the extent to which concerns over tariffs have faded as the top policy risk for markets. Now, we mentioned this earlier, but we really see it in our survey data. Tariffs had been the number two risk contributing toward downside growth in our H1 survey, and now they’re number five. So there’s been a dramatic scaling back over concerns over the impact of tariffs. So rather than trade policy driving these concerns over inflation risks, we’re really focused now on the strength of underlying demand.

You had mentioned earlier that 50% of our survey respondents have an optimistic view for 2026, and that includes one-third having upgraded their outlook. So this shift is actually a good sign for the year ahead. And I think that this, coupled with the fact that almost two-thirds of our respondents are neutral to not concerned that the Fed’s focused on unemployment will lead to a renewed bout of inflation suggests even greater limit to the extent of any policy mistake.

So domestic demand is definitely picking up. I would say the thing that we need to be careful about is the pace of increase in wages. One of the survey questions we ask our participants is for their forecast for the pace of average hourly earnings growth. And while at 3.6% for Q4 ’25 versus Q4 ’24, and 3.4% for the subsequent year, while those figures are both lower than the 4.1% growth rate we saw both in 2023 and 2024, these rates do represent a pickup from what we saw in our earlier survey. So I would say the flip side to stronger domestic demand is watching the pace of wage growth and to what extent that really does fuel inflation going ahead.

Ken Bentsen: Right. So this is a good tee-up to maybe shift gears to monetary policy. Survey respondents see one additional cut by year-end 2025, and more than half, 58%, expect at least two additional cuts by the end of 2026. In comparison to their first of the year outlook, first-half of the year outlook, forecasters project slightly more easing on a cumulative basis with median Fed funds estimate of 3.25% for Q4 2026.

Scott, what do you see on the horizon for rate cuts over the next year? I know you’ve said in your shop, you all are expecting, I think you said another rate cut this year. What do you all see over going into next year?

Scott Anderson: Well, I do think there’s a lot of uncertainty about what the Fed does next year, partly because we’re going to have a new Fed chair in May and maybe a shifting of the FOMC participants and voters. That could shift the balance between the hawks and the doves. But there’s certainly a lot of disagreement right now and a big split on the FOMC committee. It almost seems like it’s almost 50-50 right now, between the hawks and the doves and their either on inflation or growth. Which doesn’t surprise me a whole lot because the Fed only has one monetary policy tool and that’s interest rates, and they’ve got to dual mandate on inflation and labor market, and they’re both saying very different things right now on where the direction of travel on rates should go.

We’re leaning towards more rate cuts next year. We do have, like I said, a cut in our forecast in December, and we’ve got actually three more cuts in our, BMO’s forecast for next year. So I think it’s even a little bit more cuts than the median forecast from the roundtable. So we’ve got another cut in March, a June, and September. So actually, moving a little bit below what the Fed thinks is a neutral policy stance, down to 2.875 by the end of next year. Our committee, our roundtable believes it will get down to neutral at least next year, to around 3.125 by the end of 2026.

And I do think, given the shift politically, the fact it’s a midterm election year, the fact that the labor market seems to be moving to a higher rung in terms of the risks for the Fed on that dual mandate, I do think there’s a chance that we see more rate cuts developing next year, especially if we see that unemployment rate ticking higher.

One of the surprise in the September jobs report was the unemployment rate moving up to 4.4 from 4.3. Most of the consensus was that it was going to stay at 4.3. So again, more signs that maybe the labor market’s somewhat weaker than we think right now. And of course, the BLS is a benchmark revision coming out early next year where we know they’re going to probably wipe out about 900,000 jobs that we thought were created between March 2024 and March 2025. So there’s definitely a risk here that the labor market’s a lot weaker than we know right now.

Ken Bentsen: And you mentioned the hawks and the doves on the FOMC. The survey itself seemed to have some hawks and doves as well. That nearly 60% of the respondents believed that the Fed should not cut rates as much as the current outlook implies. Why are participants cautious about deeper easing?

Scott Anderson: Well, I think if you just looked at the top line numbers or growth forecasts for next year, 2.2% GDP growth is a strong year. Most economists would tell you potential growth in the United States is probably at best 1.9, probably even lower than that right now. So most economists, median forecasts that we’ll actually grow above that next year, and so there’s some skepticism that we will see any real moderation inflation, and therefore the Fed might actually have to be more stingy in cuts next year. So there’s that debate going on right now because we are getting two different signals from the spending data and the labor market data. And of course, add AI into the mix and the uncertainty about how much the jobs slow down, might be those entry level jobs, AI-related positions are holding back hiring in some sectors just muddies the water even further.

Ken Bentsen: And Heidi, how does the sentiment compare with what you’re seeing in the markets right now?

Heidi Learner: Well, in flat rates for the next year according to Fed Fund Futures stand at just below 3%, so that implies about 3.5 cuts between now and year-end 2026. And if we account for the possibility of one cut next month, and I’ll note that the futures market sees about a 70% chance of a cut in December as of today, the market is pricing in at least two cuts for 2026, so our panel is in line with market expectations. But just because the market expects the Fed to cut by this much doesn’t necessarily mean that this is the right policy prescription. And I think the concern is to what extent a reduction in rates meant to ease concerns over a weakening labor market adversely affect the inflation outlook.

Now, the good news is that other surveys and other market metrics point to an easing of inflation concerns, and I’ll point to just two metrics. One is CPI swaps. So CPI swaps put one-year inflation at 2.57% a year from now, versus the 3% rate we saw for inflation back in September. And I’ll also add that University of Michigan inflation expectations, while they’re still elevated, they’re off the highs that we saw in April and May of this year. So at least looking at market data, things are certainly headed in the right direction.

Ken Bentsen: Right. I want to dig into the market outlook. And again, we’re going to go to Q&A in just a second, so if you have a question, please go to the Q&A tab and type your question in.

Scott, let’s take a little bit closer look at market outlook. Despite the modest improvement in the 2025-2026 GDP growth forecasts since the mid-year survey, respondents still express a note of caution on future market performance. Both you and Heidi noted more than half the respondents anticipate a 10% or greater equity market correction, and almost a quarter see a chance of a 20% or greater decline by December 2026. What does this caution tell you about market sentiment heading into the next year?

Scott Anderson: Well, the market sentiment’s setting up pretty pessimistically right now. And I think we had the SIFMA annual conference just a few months ago, Ken, and polled the audience as well and there was some skepticism about whether the market could continue its run as aggressively as it has over the past several months.

We’ve certainly come a long way on equity valuations and any sort of PE metric you want to look at, forward, backward looking, Robert Shiller’s CAPE ratios. Almost every metric I know to calculate, we’re on the tails of the distributions in term of valuations. We’re really pricing in the best case scenario in terms of profitability coming from AI and the productivity boom that could develop from that. So economists aren’t really great at calling market tops, but what we can see is that we are in those tails of the distribution right now, and so there is some scope here for some, a sizeable market correction at some point. We don’t really know what the shock will be yet.

And we’re not alone in saying that. At the roundtable, we’ve seen the CEO of Goldman Sachs and others talking about the risks. And it might be a healthy thing if the market were to correct 10 or 20% because I do think we’re priced for perfection at the moment in terms of of the profitability. AI is going to be a revolutionary technology, the potential for huge gains in productivity, in GDP growth are there. But how soon will we see those profits develop? Right now, it seems to be more of a cost sink for a lot of companies because of the build out of AI data centers. The estimates that are close to $400 billion are going to AI investments this year, and that number could go up to 600 billion next year. Of course, you got big companies like Meta pledging another $600 billion in AI investments over the next three years. We’re talking hundreds of billions of dollars domestically, and probably over a trillion-dollars globally going into AI investments right now. So this is what’s gotten a lot of the attention and what’s really driven the market over the past year in terms of valuations.

Ken Bentsen: So before we go to Q&A, one other part of the market we haven’t talked as much about, we talked about it in terms of monetary policy and rate cuts, but is fiscal policy. Respondents seem to be a little negative in terms of outlook for 10-year yields, and 60% are pointing to higher debt issuance as a main driver of this. I think 82% doubt that the fiscal, annual fiscal deficit, currently 6% of GDP, will decline next year. What is that telling us? What do the respondents think about the current fiscal trajectory in a higher rate environment, and what kind of risk does that pose for longterm rates?

Scott Anderson: It’s interesting. Even as the Fed has cut rates, we really haven’t seen any real downward movement in the 10-year Treasury yield in recent weeks or months. So we do think the 10-year yield longer term rates, and that the 30-year rate’s actually higher today than it was a year ago. So we are seeing that the longer end of the Treasury curve getting pretty nervous about the ongoing deficit and debt situation in the United States and doesn’t have a lot of optimism that we’re going to see any sort of solution anytime soon in terms of getting our debt and deficit under control. So I think it does hearken back to the fact that we’re probably on an unsustainable path longer term. Now, we do have some time to solve these issues.

But for borrowers, it means you’re not going to see those 3%, 3.5% mortgages anytime soon. That we think the 10-year is probably going to stay at or above 4% next year. The mortgage rates are really priced off of those longer term rates, so that’s going to be problematic for a rebound in housing affordability and the housing market overall. We’re expecting some modest improvement as growth rebounds and the Fed cuts rates, but not a real big change on the construction front next year.

Ken Bentsen: Right. Before I go to you all for final thoughts, we have a few questions from the audiences. And again, if you have a question, go to the Q&A tab at the bottom of your screen.

This question came in. “I’ve been on two accounting firm webcasts, both economists said over 90% of consumer spending is being done by the top 10% of income earners. So that’s very skewed and doesn’t bode well for many brands.” Scott, do you have a view on that?

Scott Anderson: Well, there’s no doubt about that, higher income households have been driving a lot of spending growth this year. I don’t think it’s 90%. I think the estimate I’ve seen is closer to 50% of the spending has been coming over the past year from the top 10% of the bracket. So it is heavily skewed in that favor, in that direction, which does worry me.

One good note though is even lower income households, we haven’t seen a huge increase in delinquency rates yet. We’ve been watching that. We might see more of that if the labor market continues to deteriorate. But we have seen a little bit of a tick-up in delinquencies in the auto sector, for example, a bit credit cards, but it’s kind of leveled off in the last couple of quarters. That’s a good sign that maybe we can get through this without a disaster for the consumer.

I do think the spending we’ve seen over the past couple of quarters is not likely to be repeated. I do think some of that was tariff front-running, some of that was driven by equity markets and wealth effects. So we don’t expect a repeat of those gains in the equity market next year, and so that will be a bit of a dampener on the consumer. So we’ll see a more normal I think consumer spending environment next year. It might even be a little bit on the weak side, compared to where we’ve been in the past.

Ken Bentsen: Yeah. So that goes to the next question I had which was what do you expect in the next year with the consumer? And even though I think some of the retailer numbers came out that were maybe a little more positive than expected. But if you continue to see labor market softening, do we expect to see that spill over into consumer demand and a drag, a further drag on the economy?

Scott Anderson: We’re definitely going to see that weakness I think in the consumer in the fourth quarter, this holiday season. Even though the Retail Federation put out some numbers, they’re expecting pretty decent holiday sales. But I do think with the government shutdown, we do think there’ll be a significant slowdown in consumer spending, somewhere in the 1 to 1.5 percent range annualized growth in the fourth quarter, which is a big step-down from the 3%-plus where we’ve been in past quarters.

I do think we pick up to somewhere in the 1.5 to 2% range for consumer spending next year. So like compared to where we were two or three years ago in terms of consumer spending, but not a recessionary spending environment. That, again, is very much predicated on our labor market forecast, which suggests sluggish job growth continuing, the unemployment rate just gradually moving up. I think the committee has it moving up to 4.5% next year. So yeah, a few tenths higher than where we are today, but not a recessionary labor market by any means.

Ken Bentsen: And then the last question, back to fiscal policy. You may have answered this question in part without using the term. But the survey respondents are looking at, because of increased debt issuance, public debt issuance and debt-to-GDP ratio, or deficit-to-GDP ratio not coming down, that you expect to see the 10 and 30-year stay elevated, not withstanding what Fed policy may be. The question was at what point do you think markets will demand a higher risk premiums for treasuries? Or maybe you’re saying you’re expecting the market is going to be demanding that?

Scott Anderson: Really, I do think that’s going to be a bigger driver of Treasury yields, as long as we don’t get any improvement. Let’s hope it’s not a break, like what we saw in Greece or Europe 10, 15 years ago. But I don’t think the bond vigilantes are out in force yet at the moment, but it’s something to watch. That’s definitely a part of the yield curve that I’m watching very, very carefully. When we see this issuance coming out in the long end, are we getting a lot of uptake on those?

One thing we have seen is some of the sovereign wealth funds and some of the central banks buying less Treasurys, but that’s been largely offset by private sector buying. But we’ll have to see how that mix plays out going forward. I do think it’s a risk. We saw that happen in the ’70s when the bond vigilantes moniker was formed. So this is something that we don’t have I think banked in our median forecast, but we do see that as a potential risk.

Ken Bentsen: Right. So maybe for some final thoughts, Heidi, I’ll turn to you first, and then, Scott, we’ll let you have the last word.

Heidi Learner: I think definitely 2026 is going to be a year of inflection. We have a lot of changes on the front, as Scott mentioned a new Fed governor in line, and we will be monitoring what happens I think to the labor market will remain probably our foremost concern and the impact there on inflation and consumption. I do think also AI will continue to take center stage. One of the concerns that came out in our survey and will probably remain important in our survey for the coming year is to what extent AI is eroding job growth and what that means for the unemployment rate going forward.

So all in all, a lot of things to be watching. We’ll be watching the level of interest rates. I will note that, with the Fed’s switch or announcement that they’ll be shifting their issuance toward the short end, perhaps that bodes well for long end yields. You just mentioned what impact the fiscal deficit will have on yields. And for now at least, our participants see interest rates remaining fairly tempered, but perhaps that will be something, again, that will come out more in our survey in the first-half of next year.

Ken Bentsen: Great. Scott?

Scott Anderson: Yeah, Ken. One thing I think this year has really been dominated by trade policy uncertainty and tariffs. It’s been really foreign, overseas focused. And I think as we look at our 2026 outlook, it’s really going to be driven more by domestic concerns. So really, this One Big Beautiful Bill and the AI boom and how that’s impacting in business investment and consumer spending. As Heidi alluded to, the labor market performance is another key driver I think of growth next year. And then just overall household financial conditions, whether households will be able to survive maybe a stock market correction if one develops or continued elevated price pressures and how that’s going to effect household budgets. So I think that’s what we’ll be watching a lot more next year, and it’s really going to be more domestic focused.

And of course, we’ve got midterm election next year as well. It’ll be interesting to see if we see any additional fiscal stimulus packages that might happen. The president’s talked about a $2000 check maybe going out to households, his tariff bonus I think how he’s touting it. I think we’ll see what happens there, but it’s certainly an election year so you can’t rule something like that out right before the election.

Ken Bentsen: Right. Well, Scott, Heidi, thank you both for joining us today and for your thoughtful insights and discussion. And Scott, thank you for your leadership as co-chair of SIFMA’s Economist Roundtable.

This wraps up our podcast today. Thank you all for listening in. As a reminder, the results of the survey are available on SIFMA’s website at www.sifma.org/research. To learn more about SIFMA and our work to promote effective and resilient markets, please visit us at www.sifma.org, and thank you.

 

—

You can listen to this conversation by following “The SIFMA Podcast” on Apple, Spotify, YouTube, or wherever you get your podcasts. Sign up to receive new episodes, delivered right to your inbox.