Recently, many clients have asked about the economic outlook for the months ahead. That concern is understandable following a year marked by rapid changes in government policy and interest-rate expectations, the longest government shutdown on record, and sharp shifts in market sentiment—from April’s “Liberation Day” selloff to AI-driven equity highs later in the year.
As we enter 2026, the answer remains nuanced. The U.S. economy is neither overheating nor contracting; instead, growth has slowed and become more uneven across sectors. While headline indicators such as GDP remain resilient, the labor market has cooled, and policy uncertainty has increased.
Where the U.S. Economy Stands Today
Growth: Economic growth surprised to the upside in Q3 2025, with GDP expanding at a 4.3% annualized rate – the strongest growth in two years. Momentum, however, appears to be moderating. While the Atlanta Fed's GDPNow model estimates GDP growth of 3.0% for Q4 2025, other forecasters estimate a larger slowdown, predicting closer to 2.0% due to factors such as the job market, tariffs, and inflation.
Jobs: The job market has clearly cooled. Unemployment has risen to 4.6%, which is the highest level in four years. November payrolls added only 64,000 jobs, which suggests the economy is cooling.
Inflation: Progress on inflation resumed in the second half of the year. Headline CPI rose 2.7% year-over-year, while core inflation declined to 2.6%, its lowest level since 2021. While encouraging, inflation remains modestly above the Federal Reserve’s 2% target, reinforcing a cautious policy stance.
Interest Rates: The Fed concluded 2025 with three consecutive 25-basis-point cuts in September, October, and December. The current target range is 3.50%–3.75%. While officials signal a willingness to continue cutting rates to support a cooling labor market, internal divisions suggest that future cuts will be measured, as policymakers balance labor market risks against the persistence of inflation.
Housing & Credit: Mortgage rates declined to roughly 6.2% by year-end, supporting a modest pickup in housing activity. Affordability, however, remains constrained by elevated home prices. Credit conditions have eased, but delinquency rates are rising across auto loans, credit cards, and student loans, reflecting affordability pressures from higher borrowing costs and living expenses.
The Base Case: A Soft Landing Under Pressure
Looking ahead, the most likely outcome remains continued expansion rather than recession, though the margin for error has narrowed.
- Consumers remain selectively resilient. Spending has held steady in dollar terms, but unit volumes have slowed, and lower-income households are facing increasing pressure from elevated borrowing costs.
- Business activity is bifurcated. AI-related investment continues to support growth, while manufacturing remains weak, and services hiring slowed late in the year amid policy uncertainty.
- The Fed is in a delicate balancing act. With rates closer to neutral, the Fed retains room to respond if conditions deteriorate, though persistent inflation limits the scope for aggressive easing.
In short, growth is likely to continue, but it may feel weaker at the household level as employment gains slow and credit conditions tighten further.
Risks to Monitor in 2026
While the base case remains a soft landing, the primary risks entering 2026 are increasingly policy-driven:
- Labor Market Fragility: A further slowdown in hiring that pushes unemployment beyond the mid-4% range could materially weaken consumer spending.
- Tariff Aftereffects: While earlier trade actions were absorbed better than expected, cumulative impacts may resurface through supply chains and localized inflation.
- Credit Stress: Rising delinquency rates suggest household balance sheets—particularly among lower-income consumers—are becoming strained.
On the other hand, if inflation drops more quickly than expected, the Fed may cut rates more aggressively, which could give housing, consumer spending, and investment some breathing room.
What This Means for Investors
As the U.S. economy enters 2026, markets appear to be in a late-cycle expansion—still resilient, but increasingly sensitive to policy shifts and economic data.
Against this backdrop, maintaining a disciplined approach to portfolio construction—through diversification, periodic rebalancing, and attention to risk exposures—remains especially important as markets adjust to a slower, more data-dependent phase of the cycle.
Bitcoin and the Macro Backdrop
- Soft Landing (Base Case): If economic growth slows but avoids recession and the Fed eases policy gradually, Bitcoin could benefit from modestly improved liquidity conditions without the overhang of a broader crisis. In this environment, continued institutional adoption may support demand, and Bitcoin is likely to behave more like a risk-on asset, moving broadly in line with equities as investor confidence improves.
- Recession Scenario: A sharp slowdown with rising unemployment could trigger short-term volatility for Bitcoin and other “risk-on” assets. However, historical recoveries following policy easing have shown that Bitcoin often recovers faster, positioning it as a long-term store of value in a world of renewed monetary stimulus.
- Persistent Inflation: If inflation remains sticky and the Fed delays rate cuts, risk assets could struggle. In that environment, Bitcoin’s narrative as “digital gold” may gain traction, especially if traditional markets see stocks and bonds under pressure.
Final Thought
It’s tempting to seek a simple answer to whether a recession lies ahead. As we enter 2026, the reality remains more nuanced. The economy is slowing, but it is not contracting. While labor market softness and credit stress warrant caution, growth fundamentals remain intact.
And while the economic cycle will influence short-term Bitcoin moves, the long-term thesis remains intact: fixed supply, rising institutional adoption, and growing importance as an alternative to the traditional financial system.
Our focus remains on building resilient portfolios capable of navigating both a successful soft landing and renewed macro volatility.
Information is not intended to be and should not be construed as an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Under no circumstances should you rely upon this information as a substitute for obtaining specific investment, legal, or tax advice from your own professional investment, legal, or tax advisors. Information is subject to change based on market or other conditions and has not been tailored to your specific situation.
