Monetary

This morning’s CPI report signals that the worst of the tariff impact on inflation may already be in the rearview mirror.

Measures of labor market utilization improved in December, ruling out a January cut and significantly reducing the odds of a March cut.

Much like the 2000 episode, we expect this year to unfold in two stages: A “Great Rotation” from tech stocks to non-tech names in the first half of 2026 followed by a broad-based selloff in stocks in the second half on the back of a weakening US economy.

Our outlook for Fed policy in 2026.

This year, we once again present our 2026 outlook as a retrospective from the future – a future in which the AI boom turned to bust.

Next week, please join me for a Webcast on Wednesday, December 17 at 10:30 AM EST (3:30 PM GMT, 4:30 PM CET) to discuss the economy and financial markets. We will also host a Webcast for APAC on Tuesday, December 16 at 8:00 PM EST (9:00 AM HKT+1 day).

And with that, I will sign off for the year. I wish you and your loved ones a very happy and healthy 2026. We will be back on Friday, January 2 with our MacroQuant Model Update.

The Fed is on hold for now, but its 2026 economic projections are far too optimistic. The Fed will ease more next year than it currently anticipates. 

Our key US fixed income views for 2026.

The odds have risen that we have reached a “Metaverse Moment” – a situation where investors punish AI companies for increasing capex. This warrants greater caution towards AI stocks specifically, and the broader S&P 500 more generally.

The September employment report probably won’t convince enough hawks to vote for a rate cut in December.

This Special Report outlines the Fed’s balance sheet strategy and the rationale behind it. We also provide updated projections for the major asset and liability line items on the Fed’s balance sheet.