Economic Outlook

The global economy remained resilient in 2025. President Trump walked back his most aggressive tariff policies, with less punitive levies mitigating the impact on growth. Meanwhile, massive investment in Artificial Intelligence (AI) provided a tailwind, with consumers thriving on the wealth accumulation stemming from the unrelenting stock market rally – while businesses were active in ramping up spending on the AI buildout.

The outlook remains cloudy heading into 2026. While trade-related headwinds have subsided, one theme remains clear: We are embarking on a period of stagnating growth and elevated inflation. On the trade front, the lagged (not averted) impacts of tariffs are expected to have undesirable implications for both growth (lower) and inflation (higher). Indeed, the levies have yet to fully pass through to prices (in the United States) and exports (globally). The Federal Reserve faces a delicate balancing act in assessing these conflicting forces. While the labor market has cooled, inflation remains stubbornly elevated and is missing its target by a wider margin than the employment objective. Meanwhile, exuberance around AI leaves the economy vulnerable to disappointment should earnings falter alongside a stock market correction – and particularly should financial market conditions tighten as we expect.