Service Economy Takes the Heat for Rising Prices

Treasury Secretary Scott Bessent delivered his economic outlook on Sunday with a confident prediction: the U.S. economy will notch 3% real GDP growth by the end of the year, even after what he called the "Schumer shutdown" threw a wrench in government operations.

Speaking with CBS News' Face The Nation, Bessent acknowledged that prices for imported goods have climbed, with inflation running at 1.8%. But here's where it gets interesting—he's not blaming tariffs. Instead, Bessent pointed the finger at the service economy as the real culprit behind price increases. And there's a silver lining, he says: real incomes have grown by roughly 1%.

When pressed on how inflation affects everyday Americans, Bessent took aim at the previous administration, criticizing what he termed "embedded inflation" from the Biden era. Still, he emphasized that real income growth matters just as much as inflation when measuring economic health, and assured viewers the government is actively tackling these challenges.

On a brighter note, Bessent highlighted robust holiday spending across all income brackets, suggesting consumers remain resilient despite affordability concerns.

Fed Policies and Tariff Debates

Bessent's comments land in the middle of ongoing debates about what's really driving inflation. Back in November, he admitted certain economic sectors were facing recessionary conditions, which he blamed on Federal Reserve policies. He also traced high inflation back to the wave of government spending during the COVID pandemic—spending the Trump Administration is now working to reduce.

But in September, Bessent struck a more optimistic tone about tariffs, predicting they'd generate significant revenue and give the domestic economy a boost. Before the shutdown, he'd even forecast GDP could hit 5%—a considerably more bullish projection than his current 3% estimate.

Meanwhile, President Donald Trump has been making his own moves on inflation, recently signing an executive order to investigate potential price-fixing in the meat, seed, and fertilizer industries.

Economic Data and Forecasts

The numbers tell a mixed story. Personal income jumped by $94.5 billion in September—a 0.4% increase that beat the expected 0.3%, driven by higher wages and asset income.

However, we're still waiting on official GDP figures. The Commerce Department pushed back its third-quarter GDP estimate until just before Christmas due to the backlog created by the recent government shutdown.

Looking ahead to 2026, Bank of America forecasts 2.4% GDP growth, citing fiscal support, tax incentives, favorable trade policies, stronger business investment, and the delayed impact of Federal Reserve rate cuts. That's more optimistic than many market watchers, though notably more conservative than Bessent's rosiest projections.