We had a chaotic year (to say the least), but the US economy proved remarkably durable. Real GDP still grew 2.1% through the first three quarters of the year, helped by three interest rate cuts and consumer spending that remained high in spite of fears to the contrary.

To help us make some sense of what happened, and to prepare for what’s coming next year, here are the big themes that shaped 2025.

Trump vs. the Fed

The Fed’s independence, the backbone of its credibility with markets, came under constant political pressure this year. President Trump repeatedly pushed for rate cuts and even suggested firing the Fed chair, a legally murky move that rattled the financial world. According to CNBC’s September Fed Survey, 82% of top money managers, strategists, and economists said Trump’s actions were aimed at limiting or eliminating the central bank’s independence.

He may get what he wants: Fed Chair Jerome Powell will step down in May 2026, opening the door for the President to replace him with a friendlier central banker (more on that later).

Tariffs & inflation

Under President Trump’s leadership, the US abandoned its long-held free-trade stance and slapped double-digit tariffs on imports from much of the world—including China, Canada, Mexico, and the EU—pushing trade policy to its most protectionist stance since 1935.

Studies show retail prices began climbing almost immediately after the March tariff announcements and continued rising for months. Consumers felt it directly: during Thanksgiving week, shoppers spent more but walked away with fewer goods as higher import costs filtered through to store shelves. The effect of tariffs wasn’t large enough to derail inflation, but they sure made everything feel more expensive.

The labor market

The labor market bore the brunt of this year’s turbulence. Unemployment edged up to 4.6% in November, the highest since 2021, while the rate of people quitting fell to its lowest point since the pandemic recession. Layoffs reached 1.1 million for the year, driven largely by AI, with companies explicitly attributing 54,694 cuts to automation this year. Tariffs contributed too, triggering 8,000 job cuts, while broader organizational restructuring filled in the rest.

Government shutdown

One of this year’s most economically damaging events was the 43-day government shutdown, the longest in US history. Triggered by a budget standoff, the impasse froze key federal agencies, leaving 1.4 million workers furloughed or unpaid, and temporarily cutting off SNAP access for 42 million Americans. The economic impact was severe: estimates suggest a hit of roughly $15 billion per week, as delays in contracts, benefits, and federal approvals reverberated across households and businesses.

So, what happens next?

Well, even with solid GDP growth on the surface, it’s worth noting that several recession indicators have quietly accumulated below the surface:

The cardboard box index is down nearly 10% over the last three years, signaling slowing manufacturing industry activity.

Hamburger Helper sales jumped 14.5% year-over-year through August, showing consumers are trading down to cheaper meal options.

Heavy-truck sales are down 14.6%, their lowest level in three years, pointing to weaker demand for goods and slowing logistics activity.

Thrift store foot traffic is up 39.5%, reflecting a broad shift toward cost-conscious, secondhand spending.

Together, these micro-signals suggest that consumers are becoming more cautious, hinting that beneath the resilience of 2025, the economy may already be bracing for what comes next.—SY

The economy didn’t get an ‘A’ this year. Nor did it get an ‘F’. If we had to assign it a letter grade, we’d give it a ‘K’.

The ‘K’ shape describes the difference between higher spending among America’s most affluent, and lower spending amongst its poorest households. Part of the reason why is wage growth: The highest-earning 25% of American workers saw their wages grow 2.4% this year, while wages for the lowest-paid quartile of workers rose just 1.5%.

Wealthy consumers are also enjoying the benefits of a soaring stock market—the top 20% of households by income held 87% of the total value of equities as of Q2 2025—and appreciating home prices. Meanwhile, their less wealthy counterparts have cut back due to inflation, high interest rates, and fears of a downturn. The Bank of America Institute reports that about 30% of low-income households are living paycheck to paycheck.

The most affluent people in the country kept spending without fail this year, but if they’re the ones keeping the economy afloat, what does that mean for 2026? BofA thinks the US still has some leeway: credit card debt hasn’t risen precipitously for any income bracket, and all income cohorts have more money in their deposit accounts than they did back in 2019.

But some analysts are worried that the full effects of tariffs have yet to be felt—and when they are, the divide between haves and have nots could grow even wider, injecting more uncertainty into the American economy.—MR

Like TLC announcing a new reality show called “Suddenly Amish”, there are just some things in life you never saw coming.

But when it comes to finance, there is a lot of money to be made in trying. Here are the top themes that analysts and traders are expecting to power markets in 2026:

• Powell replacement: Fed chair Jerome Powell’s term will wrap up in May 2026. As of now, the top candidates to replace him are National Economic Council Director Kevin Hassett, sitting Fed governor Christopher Waller, and former Fed board member Kevin Warsh. While there’s no telling just yet who will come out on top, President Trump seems prepared to make his pick early next year—which could create a “lame duck” situation for Powell that inserts even more uncertainty into economic policy.
• Global trade: According to the World Trade Organization, the Organization for Economic Cooperation and Development, and the United Nations Conference on Trade and Development, trade across the world will be hit with a serious slowdown next year as the effects of tariffs become more pronounced.
• IPOs: While the IPO pipeline started to pick up again this year, it should turn from a trickle into a stream, given the backlog of companies that have stayed private for longer, combined with the effects of easing regulation.
• Interest rates: Traders are forecasting fewer interest rate cuts around the world in 2026. Here in the US, the Fed’s most recent “dot plot” forecast a median of just one rate cut, though Wall Street’s average estimate is that there will be two cuts—or perhaps even more, depending on who gets Jerome Powell’s job.
• The economy: Bank of America anticipates that, at the same time that consumers are struggling, AI will increasingly become a factor that weakens the job market—particularly for recent grads.

Finally, when it comes to the stock market, analysts are largely optimistic: The median price target is 7,500, according to MarketWatch.

And even if all the predictions end up being wrong, the truth is, the market tends to go up, and downturns balance out over time: “In 62% of years (46 out of 75), annual returns are above 10%,” wrote Carson Group chief market strategist Ryan Detrick.

You know what they say: Keep calm and dollar-cost average.—LB