Estimated read time: 4-5 minutes
- Lindsey Piegza, chief economist at Stifel Financial, discussed 2025's economic outlook, noting inflation's slow decline and its impact.
- Piegza highlighted concerns over housing affordability, recession risk and potential stagflation, emphasizing the impact of new economic policies under the Trump administration.
OGDEN — Inflation swelled last month, hitting an annual increase of 3% with Americans feeling the spike at the grocery store, gas pumps and even while paying rent.
January also marked the fourth consecutive month in which inflation has increased, rising from a 2.4% increase in September. So, while 2025 is still in its infancy, what can consumers expect throughout the rest of the year? Lindsey Piegza, chief economist at Stifel Financial, spoke about the 2025 economic outlook Tuesday at an event in Ogden hosted by the Bank of Utah.
How are consumers faring?
"I don't want to paint too much of a rosy picture for consumers because it's not all organic support for consumers," Piegza said. "Yes, we are seeing improvements in income; and with inflation coming down painfully slow, but coming down, real income growth turned positive as of 2023."
Still, many consumers are feeling the pinch of higher prices, higher interest rates and even the resumption of student debt payments.
"As a result, we are seeing this decline in spending, but it's a second derivative decline. A slower pace of still positive expenditures," Piegza said. "Consumers are still out on the marketplace buying goods and services; they're just doing so at a noticeably reduced pace."
She also acknowledged that these spending patterns are not adjusting symmetrically across all households, with some experiencing an extra heavy burden and some nothing at all.
With this established, Piegza spoke about some larger trends that could play a role in 2025's economic story.
Businesses leaning into AI and technology
While some businesses have been forced to reduce hiring plans and even close locations, Piegza said the most common method businesses have undertaken to try to rein in cost pressures is the adoption of technology — more specifically, by using artificial intelligence to replace human labor.
"AI has really been a cost-savings lifeline, but we can't underestimate the impact that this is continuing to have and will continue to have on the labor force, domestically and internationally," Piegza said.
She added that as many as 12 million jobs could potentially be replaced by technology this year alone, with 50% of American businesses surveyed by Stifel Financial saying they've already adjusted their existing workforce due to the adoption of technology over the past 12 months. Up to 80% of businesses surveyed said they have plans to adjust their workforce over the next 12 to 18 months.
"So, again, cost savings lifeline for businesses, but it is likely to have and will continue to have a significant impact on the labor force," Piegza said.
Housing affordability
Higher prices aren't just wreaking havoc for individuals and businesses but on the functionality of the housing market, as well. It's creating what Piegza described as a "massive lockout effect," with housing affordability at a near record-level low.
This not only makes it too expensive for would-be homebuyers to move into the marketplace, but it's also discouraging current homeowners from offloading their existing property at the risk of resetting to higher rates.
"This massive run-up in rates and the brevity with which rates climbed created not only a sizable lockout effect — it's too expensive to move in — but a sizable lock-in effect. It's too expensive to move out," Piegza said.
Recession risk
Piegza described the risk of the U.S. entering into a recession in 2025 as "very real."
"It's reduced, certainly, from last year's concerns, but I wouldn't put it at zero. Our model puts it at about 15% over the next 12 to 18 months," Piegza said.
But a recession isn't Piegza's biggest concern — that lies with the U.S. potentially falling into a state she described as "stagflation."
"As this Fed is hyperfocused on avoiding negative growth or avoiding that recessionary period, the committee may allow or tolerate inflation to remain above the 2% target ... for an extended period of time, eventually choking off upside potential and leading us to a non-accelerating economy," she explained. "Sluggish growth, elevated prices — the very definition of stagflation — that's my primary concern for the economy as I look at the Fed's hyperfocus on achieving that delicate balance."
New policies
Now that President Donald Trump has taken office, some of his lofty campaign promises regarding the economy are coming to light.
These include higher tariffs putting in more sizable barriers to entrance for foreign goods, lowering taxes — including potentially extending or making permanent the landmark 2017 tax reductions, potentially reducing corporate tax rates — enforcing more stringent immigration laws, and an increased focus on domestic energy production.
"The question is, with all of these policy proposals, what is the impact on the economy?" Piegza said.
And when it comes to tariffs, perhaps the most widely discussed economic policy, how inflationary could they be?
"I would argue a one-time price increase, while certainly uncomfortable for consumers already bearing the brunt of higher prices for years, lacks the perpetual upward momentum needed to incite inflationary pressures," Piegza said.
"That being said," she continued, "should this imposition of tariffs result in a back-and-forth, tit for tat, retaliatory response as we saw under President Trump's first term, that can absolutely prove inflationary and under extreme scenarios, I think, add several tenths of a percentage point to inflation on an annual basis. So, the answer is, it depends."
