This has been a bumpy year for the US economy. Although there was a massive boom in AI-related investments, uncertainties caused by President Donald Trump’s tariffs and other polices curtailed growth in the second half of the year, and disruptions to official employment and inflation data as a result of the longest-ever government shutdown have further clouded policymakers’ perceptions. The big question now is what 2026 will bring.
There are three possible scenarios. In the baseline case, the US will suffer a growth recession (meaning below-trend GDP growth) for a few months, followed by a recovery and a gradual decline in the inflation rate toward the US Federal Reserve’s 2% target. Think of this as the Goldilocks scenario. In the second scenario, the economy experiences a shallow recession for a few quarters, followed by a slower return to growth than in the first scenario….
