Weekly Economic Trends and Indicators

On Friday, the Quad Cities Chamber hosted our annual Economic Forecast. In keeping with that emphasis on thinking about the year ahead, over the next couple of weeks, we will be reviewing the major economic and business news of 2025 and looking ahead to 2026. This week, we will begin with a discussion of one specific point mentioned at the Economic Forecast to highlight the challenge presented to us in today’s environment.

The featured speaker was Kevin Depew, RSM Deputy Chief Economist, who presented a comprehensive forecast for the U.S. economy for 2026 calling for growth of about 2.2% alongside a slight uptick in unemployment and some progress on inflation. However, in his comments on that outlook, he made an observation that is worth additional consideration. Depew remarked that we may be shifting to a policy environment where fiscal policy takes on more importance while monetary policy diminishes in importance.

To be sure, the tone of monetary policy is shifting. We know that Jerome Powell, the current Chair of the Federal Reserve, will complete his term in 2026. While we do not yet know who his replacement will be, that person will certainly have a more “dovish” view of policy.

However, as Depew noted in his remarks, we are not returning to a period of near-zero interest rates such as we had after the global financial crisis in 2008. The bond market imposes limits on what the Fed can do. The market can tolerate (indeed it may desire) a slightly more dovish Fed, but if the Fed goes too far, long-term bond rates will rise.

Since the term of Alan Greenspan as Fed Chair, we have become accustomed to thinking that the Fed that can steer the ship of the economy (mostly successfully, with some notable exceptions), navigating between the rocky shores of inflation and unemployment by stimulating or reducing demand with the one main policy lever of short-term interest rates.

That era may be coming to a close. For one thing, the complexity of the modern economy is such that the interest rate lever is not sufficient to compensate for the multitude of forces impacting us today—technological advances like AI with the potential to radically alter labor markets, global economic realignment, and so on. These forces create winners and losers. Responding to those forces with only the blunt tool of interest rates is not going to solve modern problems.

Enter fiscal policy. We have, of course, used fiscal policy to respond in ways that monetary policy cannot, even in recent years (global financial crisis, COVID-19 pandemic, etc.). However, a comprehensive view of fiscal policy offers more flexibility for creating an environment for getting incentives right, compensating people who have been negatively affected by economic shocks, and creating a regulatory environment for sustained growth.

Change will not happen overnight. However, Depew’s comment on the shifting policy environment is worth keeping in mind. We are on the verge of significant economic change that will require multi-dimensional policy options to ensure that the benefits of this change will be broadly enjoyed throughout the economy. 

Next week: 2025 in review (part 1)