The soft landing that refuses to slow
The American economy has spent two years defying the recession that models kept predicting, and 2026 is no exception. The June FOMC nudged its 2026 real-GDP projection up to 2.4 percent, a pace comfortably above most estimates of trend, supported by resilient consumption, an AI-driven capital-expenditure boom and a labour market that has cooled without cracking. The contrast with Europe is stark: where Germany struggles to grow at all despite a vast fiscal push, the US grows above trend with monetary policy still restrictive.
The complication is that the same resilience keeping growth firm is keeping inflation sticky. The energy shock from the Middle East war lifted price projections through the spring, and the disinflation that looked secure a year ago has stalled above target. An economy that will not slow is an economy whose central bank cannot ease.
The new Fed, the new bias
The institutional event of the year was the transition to a new Federal Reserve Chair, Kevin Warsh, who has committed publicly to price stability and overseen a Fed that held the funds target at 3.50-3.75 percent in June. More striking than the hold is the shift in the distribution: markets that began 2026 pricing one to two cuts now assign a reasonable probability to a hike later in the year, a reversal driven by the energy shock and the stickiness of core inflation. The reaction function has turned more hawkish at exactly the moment Europe's central banks did the same.
The single most important macro fact for global allocators in 2026 is that the Fed has stopped easing and may resume hiking. Every asset priced off the assumption of a continuous US rate-cut tailwind - emerging-market debt, long duration, rate-sensitive equities - has to be repriced for a Fed that is, once again, a potential hiker.
The high-frequency picture
The monthly data describe an economy decelerating gently rather than stalling. Payroll growth has slowed but stayed positive; the unemployment rate has drifted up modestly while remaining low by historical standards. Consumption is supported by real wage gains and household balance sheets that remain healthier than in prior late-cycle episodes. The standout is business investment, where the build-out of AI data-centre and power infrastructure is a genuine capex super-cycle that is adding measurably to growth and to electricity demand.
| Indicator | Latest | Reading |
|---|---|---|
| Real GDP, 2026E | 2.4% | Above trend |
| PCE inflation | ~2.7% | Sticky |
| Unemployment | Low, drifting up | Cooling, not cracking |
| Business investment | Strong | AI capex super-cycle |
| Fed funds | 3.50-3.75% | On hold, hawkish risk |
| S&P 500 | Soft | Valuation vs higher rates |
Base case and risks
Our base case is continued above-trend growth of around 2.2 to 2.5 percent in 2026 with inflation sticky near 2.7 percent, a Fed on extended hold, and a market that oscillates between pricing the next cut and the next hike. The risks are two-sided in an unusual way: the upside risk is that the AI capex boom and resilient consumption keep growth hot enough to force a hike, while the downside risk is that the lagged effect of restrictive policy and a softening labour market finally bite. The energy path, now easing after the Hormuz reopening, tilts the near-term inflation risk lower than it looked in the spring.