Jill on Money: State of the Economy with Diane Swonk

Podcast: Jill on Money with Jill Schlesinger
Episode: State of the Economy With Diane Swonk
Date: November 28, 2025
Guest: Diane Swonk, Chief Economist, KPMG
Host: Jill Schlesinger

Episode Overview

This episode features a wide-ranging, jargon-free discussion between host Jill Schlesinger and KPMG’s Chief Economist Diane Swonk. The focus is on the state of the U.S. economy as of late 2025—particularly inflation, labor market dynamics, economic inequality, and the mixed signals being sent to consumers and policymakers. The pair examine the paradox of economic growth alongside persistent affordability crises for most Americans, dissecting the structural and temporary forces at play, and offering insight into what might lie ahead.

Key Discussion Points & Insights

Why the Economy Keeps Growing Amid Challenges

Timestamps: 03:31–05:03

• AI Infrastructure Investment: Swonk emphasizes that the primary force behind continued economic growth is a boom in artificial intelligence (AI) infrastructure and associated wealth effects, particularly boosting stock market gains.
• Disconnect Between Data and Daily Life: Although data show robust growth (especially in late 2023 and into 2024), this feels out of sync for most Americans. Consumer sentiment surveys and job market assessments reflect this dissonance.
• Permanent Change from the Pandemic: Swonk highlights that the economy is fundamentally different post-pandemic—haunted by persistent inflation and new patterns of spending and employment.

“We really went through, you know, I sort of say the looking glass as we went through the pandemic and we've never come back.”
—Diane Swonk (04:18)

The K-Shaped Economy & Inequality

Timestamps: 05:03–10:36

• Rising Tide Doesn’t Lift All Boats: The AI-driven boom disproportionately benefits a narrow set of companies and wealthy individuals, fueling a “K-shaped” recovery.
• Affluent Spending Propels Growth: The upper-middle class (households earning ~$175,000–$200,000 and above) is shouldering much of economic consumption.
• Rising Subprime Delinquencies: Lower and middle-income households face high debt burdens, and even potential Federal Reserve rate cuts may not alleviate their affordability crisis.
• Retail & Tariff Effects: Inventory front-running before tariff hikes temporarily kept some retail prices stable, but Swonk warns that margin pressures are building and more broad-based price increases are coming in 2026.

“We've got a very substantial group of very affluent consumers that are hold[ing] up the economy even as low and middle income households struggle.”
—Diane Swonk (05:42)

• Affluent Definition Clarified: Confidence data shows that the “affluent” driving spending are generally those with high six-figure incomes and sizable stock portfolios—not just the super-rich (08:46).

Affordability, Labor Force, and Societal Cracks

Timestamps: 10:36–15:11

• Budget Strain Across Major Categories: Childcare, elder care, housing, and autos all strain family budgets; costs are especially acute for non-affluent households.
• Labor Market Participation Drop: Even highly educated women are leaving the workforce due to unaffordable childcare, costing the economy up to 1.4 billion hours in lost labor per year.
• Shift in Home Care Responsibilities: Younger men are increasingly providing unpaid elder care, disrupting their earning potential.
• Backlash & Political Impact: Economic discomfort has led to backlash, visible in the elections of 2024 and 2025.

“We're already seeing it affect the labor force and people's ability to participate in the labor force.”
—Diane Swonk (11:42)

Effects of the Government Shutdown

Timestamps: 15:11–17:54

• Disrupted Data & Collateral Damage: Staffing cuts at the Bureau of Labor Statistics compromise the quality of inflation and labor data, with 40% of September CPI data imputed rather than measured.
• Longer-Term Scarring: This shutdown’s impacts are deeper—slow reopenings and salary payment delays disproportionately affect federal employees and their communities.

“It has got a little bit of a more risk of scarring than we've seen in the past… greater and larger in scope than anything we've ever endured.”
—Diane Swonk (16:29)

Labor Market Trends

Timestamps: 17:54–23:32

• Federal Workforce Layoffs: October 1st saw 151,000 federal workers off payrolls, leading to likely negative job growth that month.
• Holiday Hiring Weakness: Retailers are hiring at half their usual pace for the holidays, exacerbating labor market fragility.
• Low Job Creation Threshold: The U.S. now needs only 30,000–60,000 jobs/month to maintain the unemployment rate due to a sharply diminished labor force.
• Shrinkflation Hits Autos: Additional costs in car purchases mirror shrinkflation trends in groceries as firms absorb cost increases rather than raise sticker prices.

“We're now down to between 30 to 50 or 30 to 60,000 jobs a month in order to hold the unemployment rate steady. Because we have a fewer supply of workers out there.”
—Diane Swonk (21:07)

Inflation: The Road Ahead

Timestamps: 23:32–25:37

• 2025 Year-End CPI Projection: Swonk expects CPI inflation to end 2025 around 3.2%–3.4%, still a full percentage point above the Fed’s 2% target.
• Tariffs Still a Threat: The bulk of tariff-related price increases are forthcoming; while not as dramatic as during the pandemic, price levels will remain an ongoing concern.
• Wage Stagnation: Job posting data show wage gains dropping to 2.5%, below both pre-pandemic levels and current inflation.

“Their wages are at 2.5%. That is below anything we saw pre-pandemic. That is well below the current rate of inflation. And if that comes to fruition … that is a very tight environment for a lot of consumers that depend on annual wage hikes.”
—Diane Swonk (24:51)

Retail Sales & the Two Economies

Timestamps: 25:37–29:06

• Holiday Retail Sales Outlook: Growth of 3.5–4.5% is projected, but when adjusting for higher prices, real sales are nearly flat.
• Affluent Consumers Not Enough: While upper-income spending props up corporate earnings, most families are making tougher choices and buying less.

“It's just worrisome because inflation is something that hits 100% of everyone. Now obviously more affluent households are not as affected by it as everyone else. Unemployment… fits a smaller percentage. But when you've got both together, that’s why we start thinking about this, even a mild bout of stagflation is very painful.”
—Diane Swonk (27:48)

Federal Reserve Outlook

Timestamps: 29:06–32:18

• Odds of a December Rate Cut: Swonk rates it as a “coin flip,” noting a split among Fed policymakers. The Fed lacks the tools to solve inequality: rate cuts mostly benefit the affluent and may even stoke further inflation.
• Limits of Monetary Policy: Small rate adjustments barely impact the cost of credit for lower-income households with high-interest debt, and may unintentionally worsen inequality or trigger more inflation.

“The Fed can’t fix an inequality with the blunt tool of an interest rate cut.”
—Diane Swonk (29:32)

“Historically, the Fed has not gotten these supply shocks all right. And in their efforts to try to make it easier, it’s actually backfired.”
—Diane Swonk (31:53)

Notable Quotes & Moments

• On the post-pandemic reality:
  “We're in a world that is very different than the one we left, one that has been haunted by inflation and inflation that never really went away…” (04:03)

• On wage trends:
  “If that comes to fruition like it has historically as a lead indicator on where wages are going, that is a very tight environment for a lot of consumers that depend on annual wage hikes.” (24:51)

• On the labor market's fragility:
  “We're starting to see announcements of layoffs pick up...if we see more firing, you’re going to see the unemployment rate move up more than it has. It’s inched up to 4.3% by our last numbers, and...it could easily reach 4.5% by the end of this year.” (19:47)

• On the futility of certain Fed tools:
  “A rate cut in December is not a foregone conclusion. There may not be an extra Christmas present by the Fed underneath the holiday trees in terms of an additional rate cut.” (07:45)
  “The Fed can’t fix an inequality with the blunt tool of an interest rate cut.” (29:32)

Conclusion

The episode provides a nuanced but sobering snapshot of an economy marked by growth in statistical terms and deepening divides on the ground. As policymakers, markets, and households prepare for 2026, Diane Swonk’s insights highlight the limitations of traditional economic tools and the persistent challenges facing those outside the upper echelons of income and wealth. Listeners are left with a sense of the complexity and fragility underlying headline economic numbers, and with the understanding that “through the looking glass” is the new normal for America’s economy.

For those seeking a jargon-free, empathetic, and expert take on today’s economy, this conversation is essential listening.