ProSight Financial sat down with John Silvia, founder of Dynamic Economic Strategy and formerly chief economist at Wells Fargo, for a readout on the U.S. economy and what it means banks in the year ahead. He discusses why the impact of tariffs on inflation has been muted; the potential long-term impact on oil prices of U.S.’s political intervention in Venezuela; and how strong consumer spending, productivity gains, and net exports are serving as tailwinds for above-trend growth.
ProSight: How would you describe the current state of the U.S. economy?
Silvia: The economy is very strong. Consumer spending and net exports are two sectors promoting strong economic growth. Productivity numbers are phenomenal, even if labor force employment is moderate.
And the Federal Reserve Bank of Atlanta’s gross domestic product model recently estimated fourth-quarter 2025 growth of 5.3%. When the Congressional Budget Office estimates GDP growth potential, it’s coming in at 1.8% to 2.2%, so we’re well above trend. Is that sustainable? Right now, it looks like it could be.
ProSight: Is artificial intelligence influencing productivity, which the latest data show increased 4.9% in the third quarter of 2025?
Silvia: Not so much yet. Immigration conditions and the lack of skilled workers are forcing companies to do more with equipment and less with workers. Equipment investment right now is very strong.
ProSight: Have tariffs affected the economy in the ways people expected, such as higher inflation and higher prices?
Silvia: Businesses learn to adapt. When a tariff hits their supply chain, they have a difficult decision to make on how much of that fee they want to pass through to customers. A lot of companies are fighting for market share and are trying to avoid increasing prices. They might try compensating by saving some on labor costs, which we’re seeing in softer job-creation numbers. As a result, you’re not seeing inflation pick up as much as people expected.
ProSight: What about the job market?
Silvia: There has been a significant impact here. As the economy adjusts, the labor market is softening. Federal Reserve rate cuts haven’t done very much for the real economy either, but over the longer term they can certainly help. And they’re already helping financial markets by steepening the yield curves. In the short term, banks will benefit from the differential between two-year and 10-year Treasury yields.
ProSight: How does U.S. political intervention in Venezuela affect the price of oil, and potentially, the broader U.S. economy?
Silvia: The impact is modest at this point. Longer term, credit quality at some U.S. oil companies may suffer slightly. The U.S. has a lot of oil but not enough refining capacity so you may end up with more oil than you can refine, which ends up in inventory and drives down prices.
ProSight: Is softer employment hurting consumer credit?
Silvia: Delinquencies on credit cards and auto loans are up, but when you look at the data, it’s mainly in the 19-to-24 –year-old category. It’s the same with student loans. We have a generation entering the job market that is finding it hard to start their careers or are underemployed. Overall, though, I would not be worried too much about consumer credit.
ProSight: Economists such as yourself have talked about the “K-shaped” economy and the upper 20% of households supporting the economy. How might that affect bank credit and services?
Silvia: Understanding the generational challenges and this split, we’re likely to see banks tightening credit to younger borrowers. If these consumers aren’t making the progress in salaries and income that they had hoped for, we might also see some political implications going forward.
ProSight: What does that political risk look like?
Silvia: One concern is more regulation. We’re in a deregulatory environment right now, but that can shift. If certain parts of the market are locked out of access to financial products, for instance, we might see legislation emerge requiring banks to lend, even if the credit risk is significant.
ProSight: There has been a lot of concern about the commercial real estate market. Are we past the worst of it?
Silvia: Cap rates have started to rise again. And metropolitan areas such as Dallas-Fort Worth, Phoenix, Kansas City, and Houston are doing well. And the industrial sector is doing fine. Hotel delinquency rates are higher than a year ago, which is worth watching, and RevPAR (Revenue per available room) is down. As an economist, I could argue that these numbers are returning to their historic trend after they were artificially inflated coming out of Covid, which was an aberration.
ProSight: Are you seeing any indications that there is a recession on the horizon?
Silvia: No, not at all. But with growth far above trend and the Fed possibly adding to fiscal stimulus in the first half of the year, if I were running a bank asset allocation model, I might watch inflation creeping up to 3.25% to 3.4%. I would also expect an even steeper yield curve, which improves the business environment for banks.
