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The American economy is currently teetering on the edge of a historic "soft landing"—the rare feat of cooling inflation without triggering a recession. While the data suggests the most optimistic outlook since the pandemic, the path to a total recovery remains cluttered with conflicting signals and looming risks.
The Case for Optimism: Falling Inflation, Steady Jobs
For years, economists argued that bringing inflation down to the Federal Reserve's 2% target would require a painful spike in unemployment. Current data is defying that "inevitability":
Cooling Prices: Core inflation (excluding food and energy) dropped to 2.5% in January, the lowest level since 2021.
Resilient Labor: Unemployment ticked down to 4.3% in January, with 130,000 jobs added—surpassing many forecasts.
The AI Tailwind: Capital spending on artificial intelligence added nearly a full percentage point to economic output last year, acting as a significant engine for growth.
The Remaining Hurdles
Despite the progress, several "tripwires" could still derail the expansion. Experts warn that while the oxygen masks are off, the seat belts should stay fastened.
1. The Tariff Trap
Significant tariffs implemented last April continue to filter through the supply chain. While housing costs have cooled, the prices of tariff-sensitive goods are accelerating. Automakers, who previously absorbed these costs, are now passing them on to consumers, with core goods prices rising at their fastest pace in three years.
2. A "Fragile" Labor Market
While the headline numbers look good, the underlying structure is narrow. Job growth in 2025 was almost entirely concentrated in healthcare and education. If the AI boom begins to "reshuffle" winners and losers, stock volatility could force tech-heavy layoffs, shattering the current equilibrium.
3. The Fed’s Final Stretch
The Federal Reserve remains cautious. Philadelphia Fed President Anna Paulson noted that "the job isn't finished" until inflation hits a sustained 2%.
The "Stall" Risk: There is a fear that inflation won't surge, but rather get stuck at 2.8% or 3%, fueled by resilient, wealthy households with high spending power.
The Political and Leadership Transition
The economic landscape is shifting just as leadership does. Federal Reserve Chair Jerome Powell is set to depart in May, potentially leaving his successor, Kevin Warsh, with a "near-perfect" landing to maintain.
However, with midterm elections approaching, the Trump administration may lean toward expansive fiscal policies. This creates a tension: the White House may push for interest rate cuts to stimulate growth, even if persistent inflation suggests the Fed should keep rates "higher for longer."
The "worst-case" calamity has been avoided, but the final mile of the inflation fight is being complicated by trade policy and a shifting labor market.
A shutdown of the U.S. Department of Homeland Security that took effect early Saturday impacts the agency responsible for screening passengers and bags at airports across the country. Travelers with airline reservations may be nervously recalling a 43-day government shutdown that led to historic flight cancellations and long delays last year.
Transportation Security Administration officers are expected to work without pay while lawmakers remain without an agreement on DHS’ annual funding. TSA officers also worked through the record shutdown that ended Nov. 12, but aviation experts say this one may play out differently.
Trade groups for the U.S. travel industry and major airlines nonetheless warned that the longer DHS appropriations are lapsed, the longer security lines at the nation’s commercial airports could get.
Here’s what to know about the latest shutdown and how to plan ahead.
What’s different about this shutdown?
Funding for Homeland Security expired at midnight. But the rest of the federal government is funded through Sept. 30. That means air traffic controllers employed by the Federal Aviation Administration will receive paychecks as usual, reducing the risk of widespread flight cancellations.
According to the department’s contingency plan, about 95% of TSA workers are deemed essential personnel and required to keep working. Democrats in the House and Senate say DHS won’t get funded until new restrictions are placed on federal immigration operations.
During past shutdowns, disruptions to air travel tended to build over time, not overnight. About a month into last year’s shutdown, for example, TSA temporarily closed two checkpoints at Philadelphia International Airport. That same day, the government took the extraordinary step of ordering all commercial airlines to reduce their domestic flight schedules.
John Clark, arriving at Detroit Metropolitan Airport from a business trip in Mississippi, said he was impacted by that earlier shutdown and is worried.
“You might not be able to get home if you’re already out, or it might be delayed if you worked all week and you’re trying to get home,” said Clark, who frequently travels for his job, balancing machines. “It’s really bad.”
John Rose, chief risk officer for global travel management company Altour, said strains could surface at airports more quickly this time because the TSA workforce also will be remembering the last shutdown.
“It’s still fresh in their minds and potentially their pocketbooks,” Rose said.
What is the impact on travelers?
It’s hard to predict whether, when or where security screening snags might pop up. Even a handful of unscheduled TSA absences could quickly lead to longer wait times at smaller airports, for example, if there’s just a single security checkpoint.
That’s why travelers should plan to arrive early and allow extra time to get through security.
“I tell people to do this even in good times,” Rose said.
Experts say flight delays are also a possibility even though air traffic controllers are not affected by the DHS shutdown.
Airlines might decide to delay departures in some cases to wait for passengers to clear screening, said Rich Davis, senior security adviser at risk mitigation company International SOS. Shortages of TSA officers also could slow the screening of checked luggage behind the scenes.
Burnest R. Green, who flew to Detroit from Phoenix for his sister’s 70th birthday, says he wants the shutdown ended before he flies back in over a week’s time.
“I just hope that things start to get better before they get any worse,” he said.
What travelers can do to prepare
Most airports display security line wait times on their websites, but don’t wait until the day of a flight to check them, Rose advised.
“You may look online and it says two-and-a-half hours,” he said. “Now it’s two-and-a-half hours before your flight and you haven’t left for the airport yet.”
Passengers should also pay close attention while packing since prohibited items are likely to prolong the screening process. For carry-on bags, avoid bringing full-size shampoo or other liquids, large gels or aerosols, and items like pocketknives in carry-on bags.
TSA has a full list on its website of what is and isn’t allowed in carry-on and checked luggage.
At the airport, Rose said, remember to 'practice patience and empathy.”
“Not only are they not getting paid,” he said of TSA agents, “they’re probably working with reduced staff and dealing with angry travelers.”
Will the shutdown drag on?
The White House has been negotiating with Democratic lawmakers, but the two sides failed to reach a deal by the end of the week before senators and members of Congress were set to leave Washington for a 10-day break.
Lawmakers in both chambers were on notice, however, to return if a deal to end the shutdown is struck.
Democrats have said they won’t help approve more DHS funding until new restrictions are placed on federal immigration operations after the fatal shooting of Alex Pretti and Renee Good in Minneapolis last month.
In a joint statement, U.S. Travel, Airlines for America, and the American Hotel & Lodging Association warned that the shutdown threatens to disrupt air travel as the busy spring break travel season approaches.
“Travelers and the U.S. economy cannot afford to have essential TSA personnel working without pay, which increases the risk of unscheduled absences and call-outs, and ultimately can lead to higher wait times and missed or delayed flights,” the statement said.
A key measure of inflation fell to nearly a five-year low last month as apartment rental price growth slowed and gas prices fell, offering some relief to Americans grappling with the sharp cost increases of the past five years.
Inflation dropped to 2.4% in January compared with a year earlier, down from 2.7% in December and not too far from the Federal Reserve’s 2% target. Core prices, which exclude the volatile food and energy categories, rose just 2.5% in January from a year ago, down from 2.6% the previous month and the smallest increase since March 2021.
Friday’s report suggests inflation is cooling, but the cost of food, gas, and apartment rents have soared after the pandemic, with consumer prices still about 25% higher than they were five years ago. The increase in such a broad range of costs has kept “affordability,” a topic that helped shape the most recent U.S. presidential election, front and center as a dominant political issue.
And on a monthly basis, consumer prices rose 0.2% in January from December, while core prices rose 0.3%. Core inflation was held down by a sharp drop in the price of used cars, which fell 1.8% just in January from December.
“Inflation continues to decelerate and is not threatening to move back up, and that will enable more rate cuts by the Fed,” said Luke Tilley, chief economist at Wilmington Trust.
There were signs in the report that retailers are passing on more of the costs of President Donald Trump’s tariffs to consumers for goods such as furniture, appliances, and clothes. But those increases were offset by falling prices elsewhere. In other areas, Trump has delayed, scrapped, or provided exemptions to his duties.
Furniture prices jumped 0.7% in January from the previous month and are up 4% from a year ago. Appliances rose 1.3% in January, though they are only slightly more expensive than a year earlier. Clothing prices rose 0.3% in January from December and have increased 1.7% in the past year.
Some service prices also rose: Airline fares soared 6.5% just in January, after a 3.8% jump in November, though they rose only 2.2% from a year earlier. Music streaming subscriptions increased 4.5% in January and are 7.8% higher than a year ago.
Yet those increases were largely offset by price declines, or much slower price growth, in other areas, including many that make up a greater share of Americans’ spending.
The cost of used cars, for example, plunged 1.8% in January, the biggest decline in two years. Gas prices fell 3.2% last month, the third drop in the past four months, and are down 7.5% from a year earlier. Grocery prices rose just 0.2% in January, after a big 0.6% rise in December, and are up 2.1% from a year ago. Hotel prices ticked down 0.1% in January and have fallen 2% from last year.
Rental prices and the cost of owning a home, which make up a third of the inflation index, both rose just 0.2% in December, while rents increased only 2.8% from a year earlier. That is much lower than during the pandemic: Rents rose by more than 8% in 2022.
The tariffs have increased some costs, and many economists forecast companies will pass through more of those increases to consumers in the coming months. A study released Thursday by the Federal Reserve Bank of New York found that U.S. companies and consumers are paying nearly 90% of the tariffs’ costs, echoing similar findings in studies by Harvard and other economists.
Yet the increases haven’t been as broad-based as many economists feared.
Tilley said that the higher tariffs have pulled some consumer spending away from other services, which has forced companies to keep those prices a bit lower as a result.
“We don’t think consumers are in a place to take on price increases across the board, so you’re not seeing those price increases,” he said. Hiring was particularly weak last year, slowing wage growth, and many Americans remain gloomy about the economy.
Some economists note that the rental figures were distorted by October’s six-week government shutdown, which interrupted the Labor Department’s gathering of the data. The government plugged in estimated figures for October, which economists say have artificially lowered some of the housing costs.
Companies are still grappling with the higher costs from Trump’s duties, though some have benefited from tariffs being delayed or scrapped.
Arin Schultz, chief growth officer at Naturepedic, which makes organic mattresses in Cleveland, breathed a sigh of relief when Trump postponed import duties on upholstered furniture until 2027. They would have substantially pushed up the cost of the headboards the company imports.
Schultz welcomed the decision to lower tariffs on imports from India to 18%, from 50%. Naturepedic sources a lot of the cotton fabrics and bedding that it sells from India. When that reduction kicks in, he said, the company could even cut some prices.
Still, Naturepedic’s costs jumped because of duties on imports from Vietnam and Malaysia, where it sources its organic latex, which can’t be grown in the United States. Naturepedic makes its mattresses in the United States at a factory in Cleveland and employs about 200 workers.
“We’re paying more now for that,” he said, and the company raised its prices about 7% last year as a result. “Tariffs are awful. We are less profitable now as a company because of tariffs.”
If inflation gets closer to the Federal Reserve’s target of 2%, it could allow the central bank to cut its key short-term interest rate further this year, as Trump has repeatedly demanded. High borrowing costs for things like mortgages and auto loans have also contributed to a perception that many big-ticket items remain out of reach for many Americans.
Inflation surged to 9.1% in 2022 as consumer spending soared, as supply chains snarled after the pandemic. It began to fall in 2023 but leveled off around 3% in mid-2024 and remained elevated last year.
At the same time, measures of wage growth have declined as hiring has cratered. With companies reluctant to add jobs, workers don’t have as much leverage to demand raises.
Nearly all of the 130,000 jobs added to the U.S. economy in January were healthcare or healthcare-related.
At the same time, employers cut jobs in government, finance, information, and transportation.
Healthcare hiring contributed to overall job growth. No surprise there.
The drivers cited in the article are familiar. An aging population means more care and more demand for labor. A senior fellow at a labor-market think tank said he's not concerned about the reliance on this industry: “Old people are not going away.”
Those who see no economic risk in the growth point to the fact that healthcare jobs are stable, geographically distributed, and less exposed to automation.
Yes, but.....
It is worth remembering the backdrop against which the growth is occurring. U.S. healthcare spending has already exceeded $5 trillion annually and is projected to approach $6 trillion within the next two years, roughly 18% of GDP.
Nearly half of that spending flows directly through federal and state government programs funded by taxpayers, before employers and households even enter the picture.
While I have no data to back this up, I do know anecdotally that many employers give pause to increased hiring when they see the massive cost of healthcare squeezing their bottom lines.
Employers felt the reality particularly hard this year. Many absorbed double-digit health plan increases and are being told to expect the same again next year.
When healthcare takes a larger share of operating budgets, something else gets constrained. Job growth contraction must be a natural outgrowth of this vicious cycle.
The article explains where the jobs are coming from. Perhaps next time they can go further in asking:
What does this pattern mean over time?
What happens when the sector driving job growth is also the sector absorbing a growing share of employer budgets and public spending?
How much of this growth reflects rising need versus rising cost?
And what does that mean for the rest of the economy?
"The question facing organizations is not whether AI will change work, but whether they will actively shape that change—or let it quietly shape them."
The last line of this new HBR article gives away the game. Any organization using AI is already being reshaped by it, often in invisible ways.
This research does a great job of identifying the phenomenon, and while I'm all in favor of "AI Practices" like those suggested by the authors (intentional pauses, sequencing work, and "human grounding"), management frameworks may be outmatched by the muscle of this technology.
The shift required is more cultural at the root level. Thriving in the AI era won't be about squeezing in more prompts during lunch, but having enough reverence for attention to ensure AI works for you, and not the other way around.
One dimension that deserves careful acknowledgment is the role policy played in shaping both the pace and scale of this transition. Government mandates and incentives were designed to accelerate adoption and catalyze industrial investment — and in many respects, they succeeded.
Capital flowed, capacity was built, and technology advanced faster than it otherwise might have. However, policy can signal direction; it cannot manufacture durable demand. When regulatory timelines move ahead of consumer readiness and supporting infrastructure, the industry is often left carrying the capital burden of that gap. The broader consequence is now visible across a wide constituency — OEM workforces, supplier networks, regional manufacturing economies, and ultimately taxpayers who helped underwrite the shift. This is not an argument against electrification, but rather a reminder that **industrial transformation is most resilient when policy ambition and market physics remain closely aligned.** Going forward, the opportunity for policymakers and industry alike is calibration: encourage innovation without forcing capital cycles that outpace adoption. The healthiest transitions tend to be guided by incentives and flexibility, not rigid timetables.
The way we get hired is changing.
It’s not just that the job market has slowed. It’s that the hiring process itself looks very different from what it did just a few years ago.
Today, most applications go through applicant tracking systems and AI filters before a human ever sees them. With hundreds — sometimes thousands — of candidates per role, many workers say it feels like they’re trying to beat an algorithm, not introduce themselves to a recruiter.
As a result, a new trend is emerging: “reverse recruiting.” Instead of companies paying headhunters to find talent, some job seekers are paying firms to apply on their behalf, tailor résumés at scale, and reach out directly to hiring managers.
But economists also warn that when pay becomes part of the hiring process, it risks widening divides, giving those with extra resources an advantage in what’s already a competitive market.
Curious to hear: Has anyone seen, felt, or experienced this shift firsthand? And do you think services like this level the playing field, or risk tilting it further?