American Economy Posts 3% Growth While Fed Twiddles Its Thumbs

By Robert Paulson

Treasury Secretary Scott Bessent announced the U.S. economy will finish 2025 with 3% real GDP growth, with some quarters hitting 4%. The stock market responded by setting record highs—the S&P 500 hit 6,901 and the Dow crossed 48,700 in early December. Meanwhile, the Federal Reserve cut interest rates for the third time this year and issued careful statements about "calibrating policy" and "monitoring data."

Translation: The American economy is doing the heavy lifting while the Federal Reserve takes credit for not screwing it up too badly.

The Real Engine of Growth

What's actually driving this expansion? Private investment in AI infrastructure, consumer spending fueled by wealth creation in equity markets, and businesses building despite regulatory headwinds. Half of 2025's GDP growth came from capital expenditures and investment, particularly in AI-related software, equipment, and data centers.

Notice what's not on that list: Federal Reserve monetary policy genius. The Fed spent 2025 cutting rates from earlier highs while inflation remained at 2.8%—well above their 2% target. They project just one rate cut in 2026, signaling they're basically done helping. Good. The economy performs better when central planners stay in their lane.

Fed Still Debating While Markets Decide

The December FOMC meeting was peak bureaucracy. Three of twelve voting members dissented—the highest dissent count since 2019. One wanted a bigger cut. Two wanted no cut at all. Chair Powell announced the Fed is "well positioned to wait and see how the economy evolves." How generous of them to wait and observe what's already happening.

Markets don't have the luxury of waiting. Businesses made investment decisions months ago. Consumers adjusted spending based on actual prices, not Fed inflation targets. The S&P 500 is up over 16% year-to-date through November. None of this happened because the FOMC held thoughtful discussions about dot plots.

The Uncomfortable Truth

The American economy succeeds despite central banking, not because of it. When private capital flows to productive uses—like AI infrastructure that increases productivity—growth follows. When businesses compete for customers and innovate to capture market share, employment stays strong. When government gets out of the way, the economy does what it's designed to do: create value.

The Fed's role in this success story? Mostly staying out of the way after years of distorting price signals. Their dovish pivot in 2025 didn't create the growth—it just stopped actively fighting it. That's not impressive monetary stewardship. That's finally getting out of the driver's seat and letting the car go where it wants to go anyway.

What Happens Next

The Fed projects one rate cut in 2026 and another in 2027, targeting a long-run federal funds rate around 3%. They continue to expect inflation above 2% until 2028. In other words, they've spent years telling us 2% inflation is the target, failed to hit it, and now project three more years of failure.

Meanwhile, the American economy will keep doing what it does: allocating capital, rewarding innovation, and creating wealth. Businesses will invest based on opportunity, not FOMC statements. Consumers will spend based on income and preferences, not the dot plot. Markets will price risk and return without waiting for Powell's guidance.

The Bottom Line

The U.S. economy is posting 3-4% GDP growth, record stock market performance, and sustained employment. The Federal Reserve is posting meeting minutes and carefully worded statements. One is creating prosperity. The other is managing its own relevance.

Give credit where it's due: to American workers, entrepreneurs, and investors who build value regardless of what's happening in the Eccles Building. The Fed can continue debating monetary policy frameworks while the real economy does the actual work. That's fine. Just stop pretending central planning deserves credit for what free markets accomplish on their own.