Although only a few days into 2026, we've already seen notable events, some of which have the potential to profoundly affect long-term patterns. Our latest projections indicate expansion during the year, but there are a lot of things that bear watching.

First, the good news. We are seeing some recent improvement in inflation (though it remains an issue), and the Federal Reserve has engaged in a round of rate cuts. There are some signals that the housing market will also begin to unstick, helping both buyers and sellers. The future pattern in interest rate reductions will likely be somewhat more measured, however, and there remain forces putting upward pressure on prices.

Geopolitical tensions are fostering significant uncertainty. Conflicts in Russia-Ukraine and the Middle East continue, and while there is currently hope for progress, there is also potential for additional disruptions. The recent raid to arrest Venezuelan dictator Nicolas Maduro is another situation to watch. Conditions in Venezuela are very difficult, and it is impossible to know how things will emerge at this early state. Depending on the leadership pattern going forward, the country's vast oil reserves may become available to help rebuild (though it will almost certainly take decades to meaningfully ramp up production).

The global economy and supply chains are shifting somewhat to account for tariff levies and the related fallout, and we will continue to see this process unfold. Although there is modest onshoring in some sectors, there are also US manufacturers facing difficulties due to increased prices of imported inputs. Bankruptcies are at the levels seen in the aftermath of the Great Recession, with much of the spike in goods-producing industries. As long as disruptive tariffs are in place, economic expansion potential will be curtailed. Workable solutions would offer a brighter picture.

The job market remains weak, particularly for white-collar and manufacturing jobs, though it has been remarkably resilient. Companies are embracing AI and using it to enhance worker productivity, with the inevitable outcome of decreasing the near-term need for certain kinds of employees. When combined with the ongoing global economic uncertainty, it's tough out there for some fields. Simultaneously, there are shortages in occupations such as skilled trades, mechanics, and hands-on healthcare workers. We will likely see job market shifts throughout the year, though a reduction in uncertainty could boost hiring.

Tax cuts and deregulation have the potential to lead to increased investment across a spectrum of industries. Conversely, major escalation of conflicts, tariff hikes, and other destabilizing patterns could slow future gains. More productive implementation of AI could boost the trajectory (particularly for gross product). Needless to say, it will be an interesting ride. Wishing you all the best in 2026! Stay safe!