The U.S. economy is “very strong,” with consumer spending and net exports supporting growth and “phenomenal” productivity, economist John Silvia said in an interview with ProSight. He also pointed to the Federal Reserve Bank of Atlanta’s gross domestic product model estimate of 5.3% fourth-quarter 2025 growth—well above the Congressional Budget Office’s estimate of 1.8% to 2.2% potential growth. Silvia, founder of Dynamic Economic Strategy and a former chief economist at Wells Fargo, said of that pace: “Is that sustainable? Right now, it looks like it could be.”
Here are six takeaways:
Equipment investment is doing more of the productivity work than AI. Asked whether AI is influencing productivity, Silvia said, “Not so much yet.” Instead, he pointed to labor constraints: “Immigration conditions and the lack of skilled workers are forcing companies to do more with equipment and less with workers.” Bottom line: “Equipment investment right now is very strong.”
Tariff impact on inflation has been muted because firms are absorbing costs. Silvia said businesses are adapting when tariffs hit supply chains—and many are trying not to push those costs into prices. “A lot of companies are fighting for market share and are trying to avoid increasing prices,” he said. One way they may be compensating: “saving some on labor costs,” which he tied to “softer job-creation numbers.” The net effect, he said: “You’re not seeing inflation pick up as much as people expected.”
A steeper yield curve is already helping banks, even if rate cuts haven’t. With the labor market “softening,” Silvia said, “Federal Reserve rate cuts haven’t done very much for the real economy either,” though “over the longer term they can certainly help.” In other words, cuts haven’t provided much near-term relief as hiring cools, even if they help over time. What’s showing up sooner is market impact: rate cuts are “already helping financial markets by steepening the yield curves,” he said. “In the short term, banks will benefit from the differential between two-year and 10-year Treasury yields.”
Watch where delinquencies are rising. Silvia said, “Delinquencies on credit cards and auto loans are up,” but added that “it’s mainly in the 19-to-24-year-old category.” He also linked that pattern to early-career strain: “We have a generation entering the job market that is finding it hard to start their careers or are underemployed.” Even so, he said, “Overall, though, I would not be worried too much about consumer credit.”
Stay specific on CRE pockets of strength and stress. Silvia said, “Cap rates have started to rise again,” and pointed to metro areas like Dallas-Fort Worth, Phoenix, Kansas City, and Houston as “doing well.” He also said, “The industrial sector is doing fine.” But he flagged one area to monitor: “Hotel delinquency rates are higher than a year ago,” and “RevPAR (revenue per available room) is down,” though he noted those numbers may be “returning to their historic trend” after they were “artificially inflated coming out of COVID.”
Silvia said he doesn’t see a recession on the horizon. “No, not at all,” he said. But he added that with “growth far above trend” and the Fed “possibly adding to fiscal stimulus in the first half of the year,” he’d “watch [for] inflation creeping up to 3.25% to 3.4%” and “expect an even steeper yield curve, which improves the business environment for banks.”
Interested in a deeper outlook for 2026? Sign up for ProSight’s “Econ 2026 for Banks: Making Sense of Trends and Forecasts” webcast on Feb. 11 (1–2 p.m. ET), featuring Silvia and Tom Brown of Second Curve Capital.
