U.S. Economy Shows Resilience Despite Headwinds, Economist Tells FEDA Council

 
For most countries, the mix of high tariffs, immigration restrictions, and a foreign war would likely prompt an economic recession. But for Curtis Dubay, chief economist for the U.S. Chamber of Commerce, the United States’ durability in the face of those challenges is a testament to the power of the free enterprise system.

“I've been talking a lot about the free enterprise system as it relates to the founding of the country on the 250th anniversary,” Dubay told the FEDA Legislative and Regulatory Affairs Council at a recent presentation. “Having a free enterprise system that creates a real resilient economy really comes in handy in times like this, because we've thrown three major headwinds in front of the economy, any one of which would have thrown every other country in the world into recession.”

Still, Dubay acknowledged that while the economy is still growing, those headwinds are having an impact. Growth has fallen from 2.9% annually to only 2% for the first quarter of this year, and the Chamber’s economic forecast for all of 2026 is only slightly better at 2.3%. Despite the slower pace, Dubay said a recession is not imminent and the Chamber’s longer-term growth target of 3% remains achievable. “It sounds a little bit like wishful thinking or pie in the sky,” Dubay said. “The thing is, though, it’s not. We can grow at that rate. We grew at almost 3% in 2023 and 2024. It wasn’t like that was a great policy environment. It wasn't like we weren't throwing things in the economy's way. They just weren't as big of an impediment to growth as the ones we’re throwing in now.”

Inflation is the central challenge facing the economy right now, Dubay noted. Higher costs are creating an affordability problem that has sunk consumer confidence and led to rising credit card and auto loan delinquencies. But it’s not only consumers who are feeling those higher prices. Businesses are already spending more on their goods, but could also see the cost of borrowing money creep higher if the Federal Reserve raises rates later this year. With inflation at 3.8% — nearly double the Fed’s 2% target — the central bank will be hard-pressed to follow through on the interest rate cuts that were previously expected, Dubay said.

In the face of persistent inflation, consumer spending and business investment in artificial intelligence have been the two main forces sustaining growth, Dubay said. Consumers have continued to outpace inflation in most months this year, supported by steady job availability and wage growth averaging around 4%. What excited him most, however, is that the country’s productivity growth (2.9%) is outpacing the rise in labor costs (1.2%). “An economy that has rising productivity is one that's dynamic and growing,” he said. “It’s a kind of catch-all for what’s going on in the economy. The U.S. is really unique in having this increase in productivity because this isn’t going on in other countries.”

For more information, please download Dubay’s annotated slideshow here.