Forecasts Show Slowing Growth, Rate Cuts Amid Uncertainty

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. Together, they unpack key takeaways from SIFMA’s 2025 Mid-Year Economic Survey, conducted following the June FOMC meeting.

Topics discussed include:

• 2025 GDP growth forecast: Median projection of 0.9%

• Recession probability: Over 70% of economists see a 30–50% chance

• Key factors impacting growth: U.S. trade policy, labor market trends, and monetary policy

• Economic risks and uncertainties on the horizon

Transcript

Edited for clarity

Kenneth E. Bentsen Jr.: Hello, and thank you for joining us for this episode of The SIFMA Podcast. I’m Ken Bentsen, President and CEO at 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 FOMC June announcement, the survey captured insights from the chief US economists at more than 20 leading global and regional financial institutions. I was joined by Scott Anderson, Ph.D., Chief US Economist and Managing Director at BMO and Co-Chair of the SIFMA Economist Roundtable to discuss the results from the survey and its outlook on the capital markets. Comments and questions are welcome and listeners can reach us at [email protected]. Now let’s tune into the briefing replay.

Let’s start with the economic outlook. The median economist forecasts real GDP will grow at 0.9% in 2025. That’s a percent below from our last full survey in November 2024, and a tenth percent of a down from March 2025 flash poll. Over 70% of the economists put the probability of recession from 30 to 50%, and the top factors impacting US economic growth were US trade policy, US labor market developments, and US monetary policy. US trade policy also shows up near the top in both the upside and downside risk of the economy. So what do you make of it? How much economic slack do you think still exists in the economy? And where is it most visible?

Scott Anderson: Well, thanks for the question, Ken. You’re absolutely right, a lot has happened the last six months since the last SIFMA survey came out at the end of last year.

So well, first on your question about economic slack, even though first quarter GDP growth fell, I really don’t see a whole lot of slack in the economy yet. And that’s the good news story here. The US economy has been running hot over the last two years, and even in June, the US unemployment rate was still at 4.1%. That’s still a little bit below what most economists consider a fully employed economy at 4.2. We’re also seeing a sharp slowdown in immigration and labor force growth that’s reducing labor supply. So that’s actually cutting into some of the slack the economy might already be seeing from diminished demand.

I think as an interesting sidebar here, in the first quarter of 2025, US GDP was still about 270 billion above the CBO’s latest estimate of potential growth. So yes, we’re slowing down, we’re actually seeing more visible signs of slack today, and we’re actually forecasting more slack ahead. And the big drivers there are still restrictive monetary policy. Of course, the tariffs and trade war uncertainties, we are seeing evidence in the survey data that employers are reducing their labor demand, their hiring, scaling back or putting on hold some of their business investment plans. And consumers are becoming more choosy about where they spend their money with the prospect of higher prices from tariffs in the second half of the year. So we’ve already seen a slowdown in GDP and consumer spending growth. And we’re actually seeing some of those leading edge labor market indicators like continuing jobless claims have been moving up pretty sharply over the past month, and it’s the highest level since November of 2021. So laid off folks are having a harder time finding new jobs.

In terms of sectors where we’re seeing weakness, we actually are seeing some growing weakness in manufacturing. They’re in the front line of these goods tariffs and they’re having to adjust their supply chains to rising input costs, labor shortages, et cetera. And so they’re actually seeing some downside risk here. Housing and construction is another one. We’re very sensitive to mortgage rates and interest rates, and we’re seeing signs of households pulling back on housing and home sales.

And then just looking ahead into 2026, I think we have to look at government as another source of potential weakness. We’ve got the DOGE cuts of course at the federal level that are working through, we’re seeing going to see some more layoffs occurring in federal employees, especially in the DC area. But we actually are going to see more budget cuts and job loss at the state and local level as well, and so that’s going to be playing out over the next six months or so.

Kenneth E. Bentsen Jr.: So there’s a lot to unpack there. I mean, how would you expect that to influence wage dynamics, inflation and productivity over the next 12 months or so?

Scott Anderson: Yeah, so over the last few years, employers have been telling us that they’re worried about labor supply, rising wages, shortage of workers. That’s no longer the case today. Employers are currently putting lower demand for labor, reduced working hours and overtime hours and either putting in hiring pauses or staff reductions in some cases. So we expect a general easing of wage pressures. And we’re expecting nonfarm payroll growth on a monthly basis to be sub-100,000 in the second half of 2025. So expect more weaker job numbers ahead. The unemployment rate could tick up to 4.4% by the end of the year. So average hourly earnings have already slowed down from about 4% at the end of the year to 3.7 today, and by the end of 2026, the roundtable expects average hour earnings to be closer to 3.1%. So as Jay Powell is fond of saying in his press conferences, wage pressures are no longer a major threat to inflation.

Scott Anderson: So in terms of the medium-term inflation forecast, the big driver there is really the higher tariffs and goods import prices, potential increases in inflation expectations and lingering price pressures and services in housing sectors. The committee believes, or the roundtable believes that the core PCE could move further away from the Fed’s 2% target to around 3.1% by the end of the year before weaker labor market, slower consumer spending and business measures start to push inflation back down to around 2.5% by the end of 2026. Unfortunately, we’re not going to get to the Fed’s 2% target, we don’t think, until sometime in 2027 because of this tariff shock.

Kenneth E. Bentsen Jr.:: So I want to come back to the inflation in just a second, but the committee, as I noted at the front of this conversation, the committee sort of estimated the potential for a recession, between 30 and 50%. What’s your take on the potential for the economy is slipping into a recession, and what would be the factors that would either push it there or prevent it?

Scott Anderson: Yeah, so I think as long as monetary policy remains restrictive and trade war and tariff threats continue on and are ongoing, just over the weekend we had a lot more terror threats on the European Union, Mexico 30%, EU 30%, just last week Canada 35%, 50% on copper. So obviously they’ve not been put in place yet, the threat is that they could go into place on August 1st, but obviously the threat is still there.

So yeah, I put the probability today at around 30-35%, but that’s probably down from 35-40% where it was on April 2nd after Liberation Day, reciprocal tariffs were announced. The big driver obviously is tariffs and trade war uncertainties. Slower global growth because of the trade war I think is another factor. The spike in inflation we’re expecting, and the Fed is going to have to be cautious here and keep monetary policy restrictive for longer leading to a weaker labor market and consumer. So those are the big threats.

On the bright side, I think we have the One Big Beautiful Bill Act providing some additional fiscal stimulus this year and next year largely due to the additional tax cuts. We kind of already factored in the extension of the tax cuts from the Tax Cuts and Jobs Act in our forecast. And the other thing I’d point out is household balance sheets are still quite healthy here going into this slowdown, real personal incomes are still growing, so that will put a floor on the consumer. So our baseline forecast is not recession. And of course if the Fed can start soon cutting interest rates and inflation starts to ease next year, we have a good shot of seeing a re-acceleration in growth next year.

Kenneth E. Bentsen Jr.: So on that, and turning back to inflation, you talked about the committee’s forecast, medium forecast regarding PCE at above the Fed’s target. You all had it at 3.1 year over year, which is about 7/10th of percent higher than the fall survey, last fall survey, and three tenths of percent higher than the March 2025 flash poll. You talked about the factors around core inflation being, as you said, trade policy, inflation expectations and growth in domestic demand. Do you think the Federal Reserve is underestimating the structural stickiness of inflation?

Scott Anderson: No, I really don’t think they are. I mean, I think history does tell us and tells the Fed that if inflation becomes entrenched, it’s very, very difficult to wring it out of the economy and inflation expectations. And I believe Powell is very cognizant of this fact, and it’s a big part of the reason why the Fed has not lowered interest rates again this year as they just await how much of this tariff gets passed on to consumers, gets eaten by the suppliers or it cuts into company profit margins. There’s going to be a sharing of risk there around the tariffs. And our models tell us that a lot of the tariff inflation threat is probably more of a one-time shock, but with inflation expectations not really completely unanchored here, certainly market inflation expectations are still quite anchored, but if you look at some of the consumer surveys on inflation, at least on the longer term horizons, they’re starting to get a little bit on the high side, and that’s gotten the Fed a little bit nervous about cutting rates aggressively here.

Kenneth E. Bentsen Jr.: So if inflation remains above target or even increases into the next year, what would that mean for the Fed’s rate path? And obviously markets have been pricing in expectations around the Fed’s rate path, but are they pricing it appropriately?

Scott Anderson: Yeah, it’s really, really hard to… Powell said don’t pay too much attention to the dot plot these days. The path forward on fed rate cuts remains murky, I’d say. And you can see that the market right now is pretty much fully pricing in two quarter point rate cuts by the end of the year, probably in September and one in December, and another between two or three cuts next year by the end of next year coming from the Fed. And I think this is good of a forecast as any. I’d say our roundtable committee, the median view is actually a little bit more stingy than that. The median view is that there will be two rate cuts this year, but next year the committee only expects one cut from the Fed.

My own personal view is that the Fed might wait a little bit too long to cut rates. Growth could slow a little bit more than they expect, and then that could actually lead to more downside risk and more rate cuts than maybe the committee is thinking about here. And as we know, the president and the administration are putting some pressure on the Fed and Fed chairman to cut rates sooner rather than later. And obviously they’re not going to make the call based on politics, but there is a lot of pressure on the Fed. And if there is a new Fed chairman by May of next year, even before that as a possibility, then the president has said he’s going to be looking for somebody who can cut rates more aggressively. So that’s something to keep in mind as you look at the risks ahead, which could be a positive for the markets obviously, the equity markets and bond markets probably would welcome more rate cuts at this point.

Kenneth E. Bentsen Jr.: And you said thinking about inflation and tariffs, that the consensus view is coming around to tariffs having more of an initial shock effect, but not an ongoing or lingering inflationary impact?

Scott Anderson: Yeah, that’s right. I mean, unless it gets fed into these inflation expectation components where people start to put the higher prices into their wage contracts and negotiations, it’ll probably be more of a one-off effect, especially if consumer spending weakens, the labor market weakens as well with tariff shock. I mean, the entire committee roundtable believes that tariffs are stagflationary, they lead to somewhat slower growth, somewhat higher prices. I’ve been calling it stagflation light. And so that’s kind of how we’re thinking about this, you’re going to see some downside risks to growth in labor markets, but also upside risks on inflation. It’s why the Fed is kind stuck like a deer in the headlights right now on what they should do in terms of rate moves.

Kenneth E. Bentsen Jr.: So let’s shift over and talk about fiscal policy and the deficit. The survey found that concerns continue to grow about the long-term fiscal health of the country, particularly if new policies increase spending without offsetting revenue. US total public debt as a percentage of GDP is now slightly over 120%, federal interest expense on the public debt is running at about a trillion per year, and the federal deficit is running at about 6%, over 6% of GDP. That level is typically reserved more for recessions or other crises such as war or financial crises. But we’re having it now in sort of a non-stress period. Are the current fiscal dynamics truly sustainable in a high-rate environment in the opinion of our panel?

Scott Anderson: You’re absolutely right, Ken. I mean, some of these data around the annual deficits now, 6.5%, maybe moving up to 7% with the One Big Beautiful Bill. The debt and deficits at this point, at least in the medium term, does not appear to be sustainable. We’re not on a sustainable debt and deficit path I think today, and Jay Powell has mentioned very similar things in his comments. That’s pretty much the committee’s view. And with the recent passage of the One Big Beautiful Bill, I think the chance of returning to a more sustainable path anytime soon really does appear to be out of reach. I don’t think there’s either party right now in Congress that really can be called a fiscal hawk at the moment.

So we asked our committee, “How concerned are you about the continuation of uncontrolled fiscal spending on a scale of one to 10, 10 being the most concerned?” The median response was seven and a half from very conservative economists. So I think that’s a good sign of, we’re getting very uncomfortable here, most professional economists are, at where we are and where we’re tracking on the debt and deficit. So I don’t think we’re in for a panic in the dollar anytime soon or going to face 7-8% 10-year treasury yields tomorrow. But economists have been talking about these fiscal threats for a couple decades now, I remember when Alan Greenspan was talking back in the 1980s about we had to get our social security fund under control. But there’s not a lot of movement in Washington moving in that direction, of course the pandemic and financial crisis has just made our debt and deficit situation tremendously more urgent and worse than what we could have imagined a decade ago.

Kenneth E. Bentsen Jr.: So if you look at the treasury market, in the last year we saw about 100 basis points of cuts, and yet the 10-year still hanging around 4.5%. So the correlation seems to be out of whack. Is that related to the fiscal situation, do you think, or what are we seeing in the interaction between the rates versus historical moves?

Scott Anderson: Well, I do think the debt and deficit is going to have a bigger role in pricing of the 10-year treasury going forward. I think it’s a factor, probably maybe not yet the biggest factor driving the 10-year. And I do think the markets are still very focused on inflation, inflation expectations, and the fed rate path going forward is probably the biggest drivers right now. But this is something I don’t think bond investors can take for granted any longer, and every time the president threatens to add more tariffs to the mix or starts attacking Jay Powell, you tend to see those long-term interest rates moving higher.

We’ve seen a lot of weakness in the dollar so far this year, it was down about 12% a week or two ago from where it was on a trade weighted basis on January 15th. So that’s even against what economic theory would tell you should be happening as you put tariffs on, the dollar should be strengthening. So I think it does tell you a little bit about how nervous investors have gotten about some of these, I guess, shooting from the hip economic policies and what that might mean for the long-term future of the federal deficit and debt.

Kenneth E. Bentsen Jr.: So you said we’re not in a dollar crisis yet, or debt crisis, are there specific conditions, market, political or economic that you think would force policymakers to confront fiscal sustainability more urgently?

Scott Anderson: Yeah, I don’t think we want to go through that though. I mean, there’s nothing like a financial crisis to concentrate the minds of politicians and policymakers on this front. But I do think if you did see a continued decline in the US dollar, maybe another 20, 30% selloff in the equity markets, or, again, maybe 100 basis points spike in the 10-year treasury yield, that might get the conversation started in Washington about maybe reining in some of these deficits and deficits and even thinking about the possibility of maybe tax hikes at some time in the future here. So let’s hope that we don’t come to that, we don’t see that. But like I said, economists have been sounding the morning for a long, long time here, but no one in Washington seems to have been listening.

Kenneth E. Bentsen Jr.: So let’s turn back to monetary policy. You talked a little bit about this before, I think three-quarters of the economists on the panel expect one or more rate cuts by the end of 2025 for a total decrease in the target rate about 50 basis points, and looks for the midpoint of the target range to end 2025 at 3.926%, roughly 50 basis points from the current rate, and end 2026 at 3.625 with a total 75% basis points cuts from the current rate. And nearly 60% of economists estimate the neutral nominal Fed funds rate to be between 3-35%. Wrap all this up, what are your thoughts on the Fed’s rate path? And you kind of went into this a second ago, but what do you see for rate cuts this year and next?

Scott Anderson: Yeah, so I think the expectation is higher for longer on Fed rates. That’s the move that we’ve seen in the markets and from economists since the beginning of the year and since this trade war started. So you’re right, I mean, we only have 75 basis points and rate cuts to the end of 2026 in our median term forecast from the roundtable, which is a lot less than what the markets are currently pricing in, or even not a whole lot different from what the Fed put out in their latest summary of economic projections.

But I don’t think we have a lot of conviction in that forecast, especially as we look into next year. I mean, I think we are likely to see rate cuts, one or two this year. Next year, it could go either way. I mean, folks could be disappointed if inflation really heats up here. I’d say the roundtable is pretty divided, very similar to the FOMC committee, in terms of expectations. We have some round table members that expect zero cuts from the Fed and some looking for as many as five cuts by the end of next year. So things very similar to what you’re seeing on the FOMC today where there’s kind of a dichotomy of views here on how much of the inflation effects will really play out and how soon the Fed can start looking through that and cutting rates. We’ll have to stay tuned.

Kenneth E. Bentsen Jr.: Right. So, again, if you have questions, please go to the Q&A link on the bottom of the screen. One question, I’m not sure if the roundtable got into this or not, if they’re thinking about it, but how might productivity gains from AI and automation impact long-term inflation and wage pressure?

Scott Anderson: Really good question. I mean, yeah, so I do get asked. I sit here in San Francisco very close to Silicon Valley, go down there all the time, and obviously the discussion topic of the day is how much will AI boost productivity growth as we look out over the next five, 10 years? The good news is we’ve actually had very strong productivity growth in the US over the last two years. It was 3.1% fourth quarter to fourth quarter in 2023, it was 2.1 fourth quarter to fourth quarter last year. But the bad news is productivity actually dropped in the first quarter down 1.5, and we do see it slowing down to about 1% this year because of the drag on GDP growth from the trade war.

But I do think there is a real potential for AI to boost productivity growth and our overall economic growth and standards of living. I do think we are going to have some growing pains and problems along the way as well. I mean, obviously fraud and disinformation is a big one these days. And of course, major job losses are possible, especially in high-wage service sector positions as AI comes online. We’re already hearing anecdotal stories about new college graduates having a harder time finding employment as businesses become a little bit more cautious in adding folks and relying more on AI in some of these more lower-level tasks.

So we do need that productivity growth though to offset the drags from an aging population and slowing population growth and keep our real standards of living growing. I do think it’s important that the economic gains from AI though are as widely distributed as possible across a labor force for economic stability reasons. We know that technology besides trade tends to concentrate wealth in just very few hands, and I think some of our economic problems today have been driven by the fact that we haven’t had adequate policies to address some of those issues.

Kenneth E. Bentsen Jr.: We have another question around AI, which you may or may not have a view, and if not, I can give you sort of a SIFMA view, but what’s your opinion concerning state legislation around AI, presumably state regulation of AI, and model limitations, privacy, usage, et cetera? Should this be a federal topic? And so, again, I don’t know, I can give you a SIFMA view on that.

Scott Anderson: I’d love to hear the SIFMA view, Ken, if you want to start with that.

Kenneth E. Bentsen Jr.: I think the SIFMA view would be that it should definitely be a federal topic, that notwithstanding the interests of the states, obviously, and there have been several states who have looked at this, including California where you are. But our concern is that you end up with a patchwork of different rules that are going to create a bifurcation across the country. And so this is really for number one. Number two, our view is before policymakers go rushing into regulating AI, they should think about how rules on the books already might apply. For instance, in the broker-dealer world, the bank world, there are a significant number of rules that we think are applicable to the use of AI. So we would caution policymakers from rushing to regulate without thinking about what tools they already have in the toolbox, but also to think about it just like we have a national market system, think about it in a national framework.

Scott Anderson: And I definitely agree with you on that, Ken. I mean, I think the risks around AI are not only national, but maybe even global. So the broader bucket we can have and the more level playing field we can have around some of these rules and regulations and safeguards that are put in place, I think the better and safer for all of us and safer for the markets and everybody else. As you know, the banks are dealing with new AI fraud threats every day and doing very well with that, but the threats just keep coming. And so we do need that clarity and that simplicity would go a long way to helping us navigate the road ahead. We’re not putting the genie back in the bottle on AI, so we got to figure out how to manage the risks going forward.

Kenneth E. Bentsen Jr.: So we have another question from Brandon Morales. What is the assessment of Moody’s US credit downgrade that cited the extension of the 2017 Tax Cuts and Jobs Act as a primary contributor to the deficit? Any thoughts around that?

Scott Anderson: Yeah, no, obviously we’re moving in the wrong direction, right? I mean, obviously some of the other credit rating agencies have already downgraded US debt. Moody’s was kind of the last credit rating agency to do so. They had been on a downgrade watch for a while. So I wouldn’t say it’s a huge surprise what happened here. But I think there’s another, I guess, piece in the puzzle here of the loss of confidence from a number of players in the markets and even investors abroad with the direction of our fiscal order here and what it might mean for their investments going forward. And so one thing we’re watching very carefully is the term premium on longer term treasury yields. If we see that moving up, not because of fed rate expectations or inflation expectations, then we know that it’s a bigger driver of investors think that the budget debt and deficit is a bigger driver that we need to start getting under control.

Kenneth E. Bentsen Jr.: I have another question, what did the report had to say about consumer spending? You touched on this a little bit, but how are interest rates and inflation affecting consumer behavior? And I’d add to that, I heard on a report this morning earlier, were talking about consumers coming out of the pandemic were pretty flush, and there was tremendous pinup demand so consumer inflation, price inflation wasn’t necessarily a driver that it may be today where consumers, while you said consumer balance sheets are pretty good, maybe not as flush as say were pre-pandemic or post-pandemic. But what did we find in our report?

Scott Anderson: Yeah, well, we know that we’re more dependent on higher income households for continuing consumer spending, and that’s probably even more the case now with the Big Beautiful Bill passed. And of course the stock market just recently was at record high levels despite all the tariff risks here as we go into earnings season. So there’s still a lot of momentum among higher income households to keep spending. We are seeing more signs that lower income households are struggling a little bit more. They had a little bit of relief in the first half of the year because of declining gasoline and energy prices, and food inflation hasn’t really heated up a whole lot yet. But some of that good news is ending and we are expecting to see more stress coming from those lower income households, especially as the labor market and wage growth cools down.

I would say though, that if you look at people’s bank accounts overall in aggregate, there’s still a lot of money that has been scrolled away from the pandemic and COVID relief money. Some folks have burned through all that, but there’s still a little bit of a cushion there. So that’s why a lot of economists still aren’t throwing in the towel. Even though we’re approaching tariff rates in the US that we haven’t seen since 1934, the baseline forecast suggests that we may muddle through here at much slower growth than we expected at the beginning of the year, but not necessarily a recession yet with consumers really having to hunker down. So it’ll be interesting to see. We did see in the last month’s data a pretty big drop in real spending in durable goods, we saw a lot of volatility in auto sales, for example, big kind of tariff front-running early in the year before the tariffs hit, and now we’re kind of in the back end of that where people are not buying as many cars. So we’ll have to see where that plays out.

But overall, I think we’re still in decent shape, but it’d be better if we were in a little firmer foundation here on economic policy. But I do think there’s still a lot going for the US consumer here. And I think at the beginning of the year we were kind of cruising in for a soft landing. The Fed would probably be cutting rates today and we’d probably be close to 2% on inflation by the end of the year. That’s no longer the forecast. And so we’re all going to have to deal with if we’re business owners, investors, we’re going to have to deal with this new economic reality.

Kenneth E. Bentsen Jr.: We have another question ask if you have any thoughts on the rise of private credit and specifically with respect to market outlook, any risk it may pose to the economy or the impact on regular bank lending?

Scott Anderson: Really good question. Obviously, we’re getting a lot of questions about private credit and private equity. It is pretty opaque where the bodies are buried and where the risks lies, and there’s been a lot of money that’s moved into the space and the rates of return aren’t what they once were, I’d say we’re monitoring it. I don’t think it will rise to a risk like we saw prior to the Great Recession financial crisis, right? When it was squarely housing and mortgage risks that were driving this. But it’s something to keep an eye on. That’s one area where smoke could start.

But just in general, I’m a little concerned here that the markets have really taken a glass-half-full approach here to these economic risks. As I just mentioned, stock market record high levels, some of the lowest we’ve seen in the pandemic period, suggests that we may be under-pricing risk at the moment a little bit. And I think investors are kind of throwing up their hands at this point because it’s on again, off again on tariffs, and I do think the taco trade is real. People think the administration will walk back some of their biggest threats. And that’s the roundtable’s view as well, that we’ll probably settle in at an average effective tariff rate in the US around 14 to 16%. That’s quite a bit lower than where we were on April 2nd, where we estimated it around 26%. But if Trump puts in place all these tariffs he threatened last week and over the weekend, we could be back up to 21% on that tariff rate. So like I said, there’s still a lot of risks around tariffs and the trade uncertainty here, and that’s the big one we remain very focused on.

Kenneth E. Bentsen Jr.: So again, if people have questions, please go to the Q&A box, did the roundtable, when you were thinking about all these things, and then you add besides trade and tariffs, you add geopolitical risk, and you kind of touched on this early on talking about sectors, and you mentioned the market maybe on the other hand is sort of throwing up their hands and they’re moving forward, but in terms of business investment and confidence, do you think these issues are weighing on that in terms of longer term deal flow, deal activity, and investment commitments?

Scott Anderson: Well, we saw a slowdown in M&A activity and in IPO activity here in Silicon Valley. A lot of that was driven more by Fed policy and the restrictive monetary policy rather than growing risk to the US or global outlook. But yeah, I think when I look at it, I’m watching very closely smaller businesses, really, because they don’t have as much power to deal with the tariff shock as maybe larger multinational companies that can source from multiple suppliers from multiple countries. They’re more of a price taker when it comes to tariff, and they import a lot of their inputs into their businesses. Now, there was a huge increase in small business confidence when Trump was elected, that’s kind of plateaued now, but we haven’t seen a big drop yet. But we may start to see more evidence of that as these smaller businesses struggle.

And as we look at it regionally, because I always get questions as I go around the country talking to our clients and customers, where are we going to see the impacts, not just in sectors, but in terms of parts of the country? And I do think a lot of those rural areas, I guess sort of red state, Trump country sort of areas are more vulnerable here to the tariff threat. Ag is one area where our trading partners have targeted to retaliate against the US tariffs, the EU talking about retaliation if the US puts 30% tariffs in place on August 1st, and Canada and Mexico also have targeted those sectors in the past. So we’ll see how this plays out, but it could be very interesting come the midterm elections in 2026 how this plays out politically if we do see a big slowdown in those areas.

Kenneth E. Bentsen Jr.: Do you think, I would think a lot of the initial confidence bump after Trump’s election or reelection was also thinking about in terms of regulatory outlook or maybe deregulatory outlook and then tax. And so we’ve certainly seen in the tax bill some things around expensing and others, whether it’s a continuation of policy or not, but there’s some certainty there. And then the regulatory framework, do you see that as offsetting concerns around geopolitical and trade and tariff risks?

Scott Anderson: Yeah, the markets very early after Trump was elected really put the extension of the Tax Cuts and Jobs Act, the deregulation policies that we’re seeing even in banking and financial services sector have been quite helpful, and that was what the market was really focused on. But obviously since January 15th, it’s been almost all tariffs all the time here. So we do have this now, bill, Big Beautiful Bill that was passed that with basically all the Tax Cuts and Job Act tax cuts extended at least through the current administration and additional tax cuts around tips and overtime. But it came with a few other spending cuts as well around food stamps and Medicare that have gotten a lot of attention.

On that though, I think the committee and the roundtable sees the risks as a net negative now rather than maybe a net positive. And a lot of these tax cut effects aren’t really going to hit the economy until next year because it’s really just an extension of where we are today on taxes, so it really won’t have a big stimulatory effect like if they were brand new tax cuts that were put in place. So we do expect maybe a modest one- or two-tenths of a percent GDP bump for some of these taxes cuts next year, but nobody’s really fundamentally altering their forecast based on what was just passed. And of course, if rates were to move up because of the higher budget deficits and debt, that could wipe out any real gain we see on growth.

Kenneth E. Bentsen Jr.: We have one last question, any thoughts on the recent news from the Trump administration to potentially reprivatize Fannie Mae and Freddie Mac?

Scott Anderson: Yeah, well, I’ve heard the same stories and seen the same articles all you have on that. This is something that Republicans have been talking about for a long, long time. It does look like the administration is serious about moving forward on some of these things. I’m a little concerned privatization, we might see a bit of a increase in the spreads on mortgage rates over 10 year treasury. And there’s been no hard plan that I’ve seen put in place at the moment. I don’t know if you’ve seen anything, Ken. But yeah, something that I’d be a little concerned that it could push up, at least in the near term, mortgage spreads and mortgage rates above 10-year and could be a little bit more of a drag on housing near term, and it could lead to somewhere down the line somewhat higher delinquency rates as well from some borrowers. One thing Congress is working on is kind of loosening up some of their requirements for qualifying for mortgages, and so that could lead to somewhat higher delinquency rates as lower credit risks are able to access the mortgage market and buy houses.

Kenneth E. Bentsen Jr.: Yeah, there hasn’t been-

Scott Anderson: We saw how that played out before the Great Recession, right?

Kenneth E. Bentsen Jr.: There certainly seems to be more discussion about it, but you’re right that no detailed proposals have been put out there, and some discussion around what do you do about legacy MBS and legacy debt, and then going forward in terms of are there implicit/explicit guarantees and the like and what the impact is. So it’s certainly on our radar and our members’ radar, but there needs to be more detail on where it might be happening.

Scott Anderson: Yeah, we just don’t know at this point. That’s right.

Kenneth E. Bentsen Jr.: With that, Scott, I want to thank you for joining us today and also thank you for your leadership as Co-chair of the Economist Roundtable, SIFMA’s Economist Roundtable. And for our listeners, as a reminder, the survey results are available on SIFMA’s website at www.SIFMA.org/research. And also please look in your inbox for a link to a feedback survey, we really value your feedback because that helps us plan future briefings. And as a reminder, replay of this briefing will be available on our website in shorter. So again, Scott, thank you for being with us today, thank all of our listeners for being with us today. If you have questions on today’s briefing or others, please contact our membership team at [email protected] and look forward to talking to everyone soon.

Scott Anderson: It was a pleasure, Ken. Thank you so much.

Kenneth E. Bentsen Jr.: Thanks a lot.

Scott Anderson: See you in six months, bye.

Kenneth E. Bentsen Jr.: 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, www.sifma.org/research. To learn more about SIFMA and our work to promote effective and resilient markets, please visit www.sifma.org.

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