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Forecasters say soft landing likely but federal-policy uncertainty could alter path
Summary
National and Arizona forecasters at the JLBC advisory meeting characterized the U.S. economy as approaching a ‘soft landing’ with inflation moderating, but they cautioned that policy moves such as tariffs or large-scale deportations and ongoing federal deficits pose downside risks to growth and inflation dynamics.
At the JLBC Finance Advisory Committee meeting, external forecaster Danny Court and JLBC presenters described a national economy that has largely avoided recessionary signals despite numerous red-flag indicators over the past two years.
Court said the notion of a "soft landing" — the Federal Reserve bringing inflation toward target without triggering a recession — has become more likely. He noted headline inflation was down from its 2021–22 highs but still above the Fed’s 2 percent target; recent consensus forecasts (Blue Chip) put inflation near 2.5 percent for 2025. "We have not achieved [2 percent]," Court said, noting core services and shelter remain the largest contributors to persistent inflation.
Labor-market indicators remain strong, Court said: unemployment near 4.1 percent, continued job growth and a narrower quits rate. Household wage growth has moderated to below 4.5 percent, which he said helps restrain inflationary demand. National GDP growth forecasts cited in the presentation were roughly 2.2 percent for 2025 and 2.0 percent for 2026.
Court cautioned that federal-policy choices could materially change the outlook. He highlighted two types of policy risk: large-scale tariffs and aggressive immigration enforcement. Tariffs at the levels discussed in campaign rhetoric would be inflationary and could cause recessionary effects if broadly applied; Court called targeted tariffs more likely than the broad tariffs sometimes threatened. He also noted that large-scale deportations would reduce labor supply, which could be inflationary and harm economic activity if implemented at scale.
Panelists emphasized long-term fiscal risk from large federal deficits and rising interest costs. Court noted interest payments on federal debt have recently risen substantially and will continue to grow, increasing long-term fiscal vulnerability.
Panelists concluded that absent a major shock the national outlook is for modest growth, but they repeatedly flagged policy uncertainty as a substantial risk that could change that path. Local consequences for Arizona — in jobs, migration and revenue — will depend on which federal actions are implemented and at what scale.
