Here’s the Good News and the Bad News. 4 Calls From a Top Economist.

Tom Porcelli, shown in 2024. (Aristide Economopoulos / Bloomberg)

Key Points

• Wells Fargo’s new chief economist, Tom Porcelli, says that despite the government shutdown, economists aren’t operating completely in the dark.
• Porcelli anticipates the Federal Reserve will implement a rate cut in December, followed by two additional cuts in the first half of the coming year.
• Porcelli forecasts no recession for the upcoming year. He says a “shock event” would be needed to bring one on.

You won’t catch Tom Porcelli, Wells Fargo’s new chief economist, lamenting the lack of economic data on hand these days.

Although the record-breaking government shutdown has delayed critical federally produced measures of employment, inflation, and economic activity, Porcelli says economists and Federal Reserve officials are far from operating completely in the dark. He is busy scrutinizing the available private data, concluding that the U.S. economy is still holding up.

Porcelli, who most recently served as chief U.S. economist at PGIM Fixed Income, joined Wells Fargo as chief economist on Nov. 3. He succeeds Jay Bryson, who retired this year.

Barron’s spoke with Porcelli last week about his career move, the economic outlook, and the Federal Reserve’s next steps. An edited version of the conversation follows.

Barron’s: Congratulations on the new gig. What are you most looking forward to?

Tom Porcelli: Thanks. I’ve been here for a grand total of a week. PGIM is an amazing place and I feel lucky that I was able to work with such a talented group of people. But this was one of those opportunities, in my estimation, I would define this Wells job as one of those once-in-a-career opportunities that if you’re lucky enough to be offered it, you have to say yes.

We have a really good team here, not just on the economics team, but at Wells at large, and I’m excited to build on what has already been constructed here. In my previous roles, I think I was very effective at working across the various teams within the broader organization. And we have so many resources to really put research in a place to be able to do that here. I’m looking forward to it. I feel genuinely thrilled to be here.

Let’s talk about your economic outlook. With the alternative data we have on hand currently, what’s your read of the economic landscape right now?

I don’t like this idea that we’re flying blind. That’s a mischaracterization. There’s still data out there for us to chew on. There are plenty of nongovernment agencies that are producing data, and some of it is actually quite good.

So we do have a sense for it and when I hear Fed officials talk about the idea of flying blind, I don’t think that’s a completely fair way of thinking about it—especially for them when they have access to countless corporate executives to really try to extract information. In fairness, a lot of investors can do the same thing. If someone wanted to make a characterization, you could say you’re flying in thick fog or something like that.

What private data indicators do you like?

Any of the manufacturing data is very useful; obviously the regional Federal Reserve banks produce an assortment of them. ISM does as well, plus ISM produces a service indicator. So we actually have a pretty decent swath of the economy covered.

But then, now the sentiment data matter too. I am a believer that you should not take the sentiment data hook, line, and sinker because we know that what a consumer says and what they do can sometimes be different things.

But there are data embedded in there that are actually quite useful. One of my favorite metrics is the labor differential, which comes from the Conference Board’s measure of consumer confidence.

That, of course, measures the number of Americans who think jobs are plentiful versus those that feel jobs are hard to get. What is data like that telling you?

They’re telling us right now that the economy is muddling through. That’s a very fair way of describing the economic backdrop at this point. It’s not deteriorating, it’s not accelerating. We’re in this sort of near- trend backdrop that looks neither too hot nor too cold.

There are risks, particularly as it relates to the labor backdrop, that we have to be very mindful of. The data that we have been getting on labor really does suggest that there’s been a notable slowing. Now, slowing doesn’t mean it’s falling off a cliff. That’s an important distinction.

What do you think the Fed’s going to do?

There’s no question that there is this growing divide within the committee—which, by the way, I don’t know why that’s anything other than a positive. We want two-way conversation. We want debate to happen within the Fed.

We do expect that they’ll cut in December. There’s no question that it’ll be close, particularly as it relates to which members are going to dissent and not. But I also think that they have two more cuts after that, and they’ll probably get those in the first half of the coming year.

Two consecutive cuts?

It could easily be March and June cuts. I don’t think it has to be consecutive, but I think two cuts is a very fair way of thinking about this for the first half of the year. Then, at that point, we’re close enough to the realm of neutral.

No one knows [exactly] what neutral is. But at that point, it’s close enough to the realm of neutral where that’s the point at which they stop.

On the current weakness in the labor market, what changes and when does it change?

The whole idea of the labor hoarding that we were talking about a couple of years ago is done. They don’t feel compelled to hoard labor at this point. What’s happening now is companies are right-sizing.

Within different sectors, I don’t really see any notable imbalances. To me, that means there doesn’t have to be this overwhelming labor shedding. But again, I also don’t think that there’s necessarily a need to ramp up from a hiring perspective.

So that means we probably remain in this roughly break-even environment from a hiring perspective. And that’s consistent with our growth profile of roughly trend growth.

Looking at inflation, what do you see ahead?

There’s still more inflationary pressure waiting for us. Companies were really smart about dealing with higher tariffs. They basically built inventories in a very notable way, and that really acted as a buffer to the tariff pressure. Companies also are in the fortunate position of having quite high margins at this point, and so that’s allowing them to eat some of the tariff increases.

But let’s be clear, it is happening. You are seeing inflationary pressure build on the back of tariffs. That’s not a guess. What is going to wind up happening from an inflation perspective is that you actually don’t really peak from an inflation perspective until next year, probably sometime in the first half of next year.

Lower- and middle-income households have definitely been feeling the squeeze. How long can they hold up?

The answer to that question is how long will the jobs backdrop hold up. Those ideas are interlocked.

Our view is that the labor backdrop will hang in there over the course of the coming year to the next year and a half. That helps put a floor underneath economic activity, specifically for consumption.

It sounds like your forecast for 2026 is no recession?

No recession. It would take an event. It would take some sort of shock event for a recession to really come about at this point. That is a real testament to how sturdy the backdrop is.

There are challenges, to be sure. But the likelihood of recession is actually quite low.

Thanks Tom.