This week’s data offered a reassuring message for markets: despite political noise, tariff headlines and breathless commentary, the economic fundamentals remain surprisingly well-behaved. The expansion continues, inflation continues to cool and the Federal Reserve (investigation headlines notwithstanding) appears on autopilot until mid-year. In other words, the macro dog is still wagging the political tail, not the other way around.

Executive Summary

• The Fed remains on course to hold policy steady until mid-year as inflation trends toward target and the labor market stabilizes.
• Disinflation is broadening, with goods inflation largely behind us and services doing the heavy lifting in 2026.
• The US consumer remains resilient, though increasingly bifurcated by income.
• Housing and manufacturing show stabilization, helped by modestly lower rates and improving sentiment.
• Global trade is slowing meaningfully, as tariff front-loading fades and AI-driven import growth decelerates.
• North American trade faces a pivotal moment, with United States-Mexico-Canada Agreement (USMCA) negotiations representing a major medium-term risk, particularly for Canada and Mexico.

Monetary Policy: All Noise, No Signal

Despite a criminal investigation into Fed Chair Powell, markets have barely reacted and for good reason. Inflation expectations remain anchored and recent labor market data show stability rather than stress. The Beige Book reinforced this view, reporting improved activity across a majority of Fed districts and no mentions of layoffs for the first time in several reports.

Fed independence appears intact and if anything, political pressure may raise, not lower, the bar for near-term rate cuts. The Fed seems set to remain on hold until June, with the potential for two cuts later in the year as inflation trends toward target.

• Key takeaway: Ignore the headlines, policy remains data-dependent, not headline-dependent.

Inflation: The Last Mile Looks Manageable

December CPI and PPI reports confirmed that disinflation remains intact, even as data distortions related to the government shutdown continue to muddy short-term readings. Core goods inflation has largely normalized, while services inflation is gradually easing as trade volumes fell in the back half of 2025.

Import prices remain subdued, reflecting weaker global demand and easing supply constraints rather than domestic weakness. Tariff-related price increases seem to have mostly been passed through at this point and any new ones are now increasingly being absorbed by producers, suggesting the worst of tariff-driven inflation is behind us.

• Key takeaway: The inflation fight is shifting from trench warfare to cleanup duty.

Growth Check: Resilient, If Uneven

The US economy continues to demonstrate quiet resilience. Retail sales capped off a solid holiday season and industrial production surprised to the upside in December, ending 2025 at its highest level since 2019.

Housing remains a mixed picture, but sentiment has stabilized. Builder confidence dipped modestly in January, yet lower mortgage rates and aggressive use of incentives should support a gradual recovery in housing activity over the course of 2026.

Consumer spending, however, remains bifurcated. Higher-income households continue to spend freely on services and travel, while lower-income consumers grow more price-sensitive, a dynamic echoed across multiple Fed districts.

• Key takeaway: The expansion continues, not with fireworks, but with stamina.

Global Trade: The Air Is Coming Out

Global trade proved more resilient than expected in 2025, but much of that strength reflected temporary factors such as front-loading ahead of tariffs and a surge in AI-related electronics demand. As those tailwinds fade, it is likely that world goods trade growth might slow sharply in 2026 and 2027.

US imports are already running well below year-ago levels, while Asia ex-China remains the primary beneficiary of AI-related supply chains. Even there, growth is moderating. Meanwhile, China’s export surge, supported by aggressive price cutting, raises the risk of renewed protectionist responses globally.

• Key takeaway: Trade is reverting from sprint to shuffle, with policy risk rising alongside fatigue.

USMCA: A Quiet but Consequential Fork in the Road

One of the most underappreciated macro risks this year is the upcoming USMCA review. While the US economy is relatively insulated, Canada and Mexico face asymmetric downside risk if negotiations stall or exemptions are rolled back.

A benign renegotiation would likely restore certainty, while a breakdown could lead to recessionary outcomes in Canada and Mexico and long-term scarring of North American supply chains. For investors, the key risk is prolonged uncertainty, which historically weighs on capital investment even when headline growth effects appear modest.

• Key takeaway: North American trade may soon remind us that “known unknowns” still matter.

Bringing It All Together

This week’s data reinforce a familiar but important message: the macro backdrop appears to be stabilizing, not deteriorating. Inflation is cooling, growth is steady and monetary policy remains seemingly predictable, luxuries in a world otherwise rich in uncertainty. The larger risks increasingly sit outside traditional macro variables, in trade policy, geopolitics and political theater.

For investors, we believe this argues for discipline over drama, diversification over dogma and patience over prediction. Or put differently: the economy is holding up, let’s not spook it.

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