St. Paul finance committee hears state economists warn of slower growth, higher inflation risks

St. Paul City Finance and Budget Committee members heard a presentation May 6 from Dr. Anthony Becker, state economist and professor of economics at St. Olaf College, and Amanda Ianes, manager of the Economic Analysis Unit at Minnesota Management and Budget (MMB), outlining a national and state economic outlook the presenters said should inform the city’s budget planning.

Becker told the committee that “policy uncertainty” is central to the outlook and said the consultants whose forecasts MMB uses — Standard & Poor’s Global Market Intelligence (SPGMI) — now expect U.S. gross domestic product growth to be below 2 percent and cited a baseline 2025 growth rate near 1.3 percent. He said SPGMI’s model shows higher inflation over the next year — “as much as 3.4% for 2025” — and that the data imply only limited moves by the Federal Reserve, with “one rate reduction in this year” in the consultant’s baseline. Becker warned that a drop in business fixed investment projected for 2026 is notable: “A drop off in investment often precedes a recession,” he said, while stressing he was not attempting to predict one.

Becker and Ianes flagged tariff policy as a key cost pressure for Minnesota businesses and households. Becker described recent trade developments including higher tariffs on some imports and the persistence of Section 232 national-security tariffs on steel and aluminum, and said those policies can cause “cost-push” inflation as producers face higher input prices and pass them along to consumers. On consumer borrowing and housing, he said long-term mortgage rates were likely to remain elevated in the near term — staying above 6 percent — which could blunt housing activity.

Amanda Ianes said Minnesota’s economy retains structural strengths that provide resilience. She told the committee Minnesota benefits from a highly educated labor force, a diverse industry base, a high concentration of corporate headquarters and sustained innovation. “I am lucky that I get to tell a good story about Minnesota’s economy,” Ianes said, noting the Twin Cities’ strong performance on standard-of-living indicators and its concentration of headquarters jobs and Fortune 500 firms.

Both presenters emphasized demographic constraints. Ianes said population and labor-force growth in Minnesota have been supported in recent years by higher-than-usual international immigration, and she warned that lower immigration assumptions are already reducing projected labor-force growth. She said the state-level macro forecast had been adjusted to reflect lower immigration assumptions, a change she described as subtracting roughly 500,000 from an earlier annual population assumption in the larger macro forecast scenario. That decline, the presenters said, reduces available workers and contributes to lower projected GDP growth.

Committee members pressed for clarification on technical measures and on implications for the city budget season. Becker explained the difference between the Consumer Price Index and the core Personal Consumption Expenditures price index, saying the PCE measure (and its “core” variant excluding food and energy) is a broader, less volatile gauge used by macro forecasters. Committee members also asked whether Minnesota’s relative strengths — low unemployment and a diversified economy — mean the state will be insulated; both presenters said Minnesota’s fundamentals help, but that national trends and federal policy choices still materially affect state and local revenues.

Both speakers urged fiscal caution and monitoring. Becker described the forecast’s range of scenarios — baseline, pessimistic and optimistic — and said the pessimistic path the consultants assign a measurable probability to could show recessionary outcomes. Ianes recommended that local officials watch revenue streams that are sensitive to national activity, including sales tax receipts and corporate tax remittances, and called out workforce and housing policies as levers a city can use to sustain growth.

At the end of the session, chair Nelsie Yang thanked the presenters and noted the committee will continue this briefing series as the city moves into budget season.

Ending: The presentation supplied updated forecasts and risk factors for St. Paul’s budget planning: higher near-term inflation, elevated borrowing costs, weaker business investment in some scenarios, and demographic limits on labor-force growth. Committee members were advised to plan conservatively for revenue uncertainty and to consider housing, workforce connection and services that influence the city’s ability to attract and retain residents and jobs.