Here are my thoughts for the year ahead.
#1: Trump will Lose His Supreme Court Battle on Reciprocal Tariffs
Expect a 6-3 margin against Trump, possibly 7-2. I rate this a 75 percent chance.
Then If he loses, then there is about a 60 percent chance of at least some of the money will have to be refunded.
Trump will moan the SC is killing the best economy in history. He will also say that the ruling will have no impact at all. This is illogical of course, but seriously, expect both statements.
Trump will pursue other avenues of doing the same things with mixed success (using the word success in terms of what Trump wants, not what’s good for the country).
#2: Trump will Lose His Supreme Court Battle on Birthright Citizenship
Expect a 7-2 vote against Trump. 9-0 would not be a surprise.
I rate this a 90 percent chance.
#3: Trump will lose his Supreme Court battle over the right to fire Fed governor Lisa Cook.
Expect a 6-3 vote against Trump. I rate this a 80 percent chance.
#4: AI will have minimal impact in 2026
There will be some job losses. And some speculation fails. But don’t any extreme job losses or huge numbers of AI-related bankruptcies. Extreme events are unlikely.
I rate this an 75 percent chance.
#5: Tariffs Will Bite
Businesses that can will pass along more costs. In contrast to AI, we will see job losses mount.
Small business bankruptcies soar.
Trump will blame Biden, the Fed, and the Supreme Court for everything bad that happens.
I rate this an 80 percent chance.
#6: Republicans Lose the House
Voters do not believe we have best economy in history. And they will take it out on Republicans in the midterm elections.
It will be a low turnout affair as non-MAGA republicans show no enthusiasm to vote.
I rate this an 75 percent chance.
#7: Trump persuades Russia and Ukraine to accept a peace deal.
This will be Trump’s key accomplishment in 2026.
I rate this an 60 percent chance.
#8: Health Care makes the Fed’s life miserable.
Health care will add 1.5 to 2 percentage points to he PCE. And that’s the Fed’s preferred measure of inflation.
I rate this a 70 percent chance.
Unless the economy collapses everywhere else killing demand (and it could), the Fed will have a difficult time cutting rates.
Consumers are already upset over inflation. Health care will make 24 million people on Obamacare miserable.
#9: Finally a Recession
The Fed is concerned about job losses to the downside and inflation to the upside. I agree with the Fed on both scores.
AI will not be a savior for the economy. Nor will the Fed. The economic damage from tariffs and deportations will finally sink the economy.
I don’t have a strong conviction about recession. Call it 55 percent.
Right now we have a K-shaped economy propelled by AI spending and health care spending. The wealthy are propping up aggregate spending.
How much longer consumer spending stays robust depends on the stock market. I have no firm conviction. But as long as the stock market stays elevated, the wealthy will keep spending.
That said, I do have a strong conviction of the type of recession when it finally happens: Long and shallow, the opposite of Covid which was short and extremely deep.
The Fed will be constrained in action because of health care inflation, because a weak dollar adds to inflation, and because debt levels and rising debt pressures the dollar.
#10: The Unemployment Rate
The unemployment rate heads up to 5.5 percent. I rate this a 70 percent chance.
That’s less than a full percentage point rise from where we are.
5.5 percent unemployment is not a huge number. Demographics come into play. Retiring boomers keep the rise to a minimum.
This call is related to a long, mild recession but it can happen even in the absence of recession.
Related Posts
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- Tariffs: What Are the Odds the Supreme Court Rules Against Trump on Tariffs?
- Small Businesses: Richmond Fed Survey Shows Small Businesses Impacted More by Tariffs
- Deportations: 550,000 Who Are Legally Working Lose that Status by Year End
- Stock Market: Michael Burry Is Shorting Nvidia and Palantir. Early, Wrong, Neither, or Both?
- Ukraine: Trump Praises Zelensky, Cites Peace Progress, After Meeting at Mar-a-Lago
- Fed Lisa Cook: Trump’s Chance to Pack the Fed with Loyalists Just Blew Up
- Midterm Elections: What Are the Odds Democrats Flip the House in the 2026 Midterms?
- AI: How Much Did AI Spending Contribute to First-Half GDP? What About Q3?
- AI: Is AI a Magic Bullet or a a Doomsday Machine?
- AI: ‘AI Is Going to Change Literally Every Job’ Warns Walmart CEO
- AI: Elon Musk Backs Universal High Income Fearing AI Will Take Every Job
- Health Care: Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible
- Health Care: How Much Does Health Care Contribute to GDP?
- Debt: US Debt Now Grows by $1 Trillion Every 150 Days
- Jobs: Only a Third of CEOs Plan to Hire Workers in 2026
- Jobs: Challenger Reports Employers Announced 71,321 Job Cuts in November
- Jobs: Small Businesses Drop 120,000 Jobs in November, ADP Total Down 32,000
- Birthright Citizenship: What Were the US Senators Thinking When They Debated the 14th Amendment?
more TACO
Trump Delays New Tariff Hike on Furniture, Kitchen Cabinets
https://archive.is/U3YmY#selection-1163.0-1163.59
The DOJ picked the wrong argument regarding birthright citizenship. Instead of wordsmithing, the argument should have focused on the legal concept that ill gotten gains (citizenship for a child) from a crime (parents’ illegal entry into the country) must be returned / relinquished.
Interest rates will remain relatively elevated as the 60 year cycle advances through its remaining 14 years. The 1st “18” month cycle of the present 54 month cycle is due to “bottom” in late March / Early April 2026. The new “18” month cycle is expected rally.
We’ll have an outright depression starting in 2026. The start of the DotCom Bubble popping to the end of the housing bubble recession was a WAVE 4 flat. WAVE 5 has been going for 17-18 years. Smaller Wave 5 and wave 5 look like ending diagonals that should complete in the following weeks. Sharp reversal ahead with initial support near COVID lows.
Naturally the unemployment rate will go up in a recession / depression. Layoff announcements (WARN) in late 2025 will drive unemployment numbers higher early in 2026.
Mish’s predictions are reasonable. I predict more inflation given the excess demand pumped into the economy by Trump’s big, beautiful bill. The government data will continue to mislead us into believing we are doing well when the reality is different. Consequently, the Republicans will be swamped in midterm elections and socialism will be on the way. A presidential ticket containing AOC and maybe a Mandani figure is possible.
Ahh, we tried that over-correction to the left in the UK (Corbyn) – didn’t end well.
All sounds like reasonable bets.
I think you missed out the possibility of “electoral engineering” aka “procedural disenfranchisement” as Trump does all he can to skew or cast doubt on the mid term results.
Ukraine probability a bit high (as it will not end until Putin either wins or is put under pressure).
Also no mention of China and Taiwan. Not an invasion but a rolling back of commitment from the US. Taiwan will feel thrown under the bus.
Also not a key single event but I think the continued boiling of the frog in relation to control over the media agenda, implicit pressure on law makers and supression of dissent will continue. Watch out for democracy and freedom of speech index falls this year.
How would #7 come about? Zelensky’s holiday wish was for an early Putin death, and Russia is now poised for significant retaliation (possibly with Oreshnik) for an attempt on one of Putin’s residences. My prediction: 2026 is when we see the final collapse of the Ukraine army as a cohesive entity. I expect Russian forces to be all along the Dnieper and threatening to enter Odessa by the end of spring.
The Russians didn’t even produce any wreckage from the supposed wave of 91 drones that supposedly were attacking one of Putin’s many palaces. No video, no alarms heard by the Russians nearby. Nothing.
One-sided take by a Russian bit.
I don’t think number 7 will happen because Zelensky is a dead man walking as soon as the conflict ends. This is why he must stop peace moves.
https://sputnikglobe.com/20260101/zelensky-knows-hes-toast-after-conflict-ends–analyst-1123398797.html
Others have noticed this too, as above. Ukraine will keep bleeding, EU will keep supporting and “experts” will continue to come up with ‘reasons” why Ukraine will win somehow. I feel very sorry for young Ukrainian men who are trapped, facing death and poverty, forbidden to run away – while oligarchs steal.
Are you sorry for the Russians who are dying as well?
Russian bot.
Wish for 2026 – less Russian propaganda on blogs.