- Economic growth in Q4 2025 was much weaker than expected, with a sharp 17% drop in federal spending and softer consumer activity.
- Despite readings being on target, inflation risks are mounting from tariff delays, fiscal stimulus, and geopolitical energy shocks, potentially accelerating above 3%.
- The Federal Reserve is holding rates steady at 3.50%–3.75%, emphasizing it needs concrete progress on inflation before considering cuts, with 2026 outlook showing rates on hold through at least the first half.
A recent JPMorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/economic-update/”>J.P. Morgan economic update from Week 11, 2026 depicts a U.S. economy facing mounting pressure despite its resilience. Growth disappointed in Q4 2025, while inflation risks are building from multiple directions. Consequently, the Federal Reserve’s stance remains firmly on hold, signaling a cautious path ahead.
US economic growth came in at just 0.7% annualized, a sharp downward revision driven by a 17% drop in federal spending. Meanwhile, consumer spending growth fell to 2%, down from 3.5% in the previous quarter. February’s jobs report showed a loss of 92,000 nonfarm payrolls, with the unemployment rate ticking up to 4.4%.
However, headline and core CPI met expectations in February at 2.4% and 2.5% year-over-year. J.P. Morgan sees inflation risks growing from delayed tariff pass-through, ongoing fiscal stimulus, and fresh energy shocks. Chief Global Economist Bruce Kasman stated, “U.S. inflation is expected to accelerate above 3% over a year ago as an early-year rebound combines with persistent goods price pressures.”
The Federal Reserve held rates at 3.50%–3.75% at its March 18 FOMC meeting, its second consecutive hold. Chair Jerome Powell struck a careful tone, stating, “The forecast is that we will be making progress on inflation, not as much as we had hoped, but some progress on inflation.” He added, “The rate forecast is conditional on the performance of the economy, so if we don’t see that progress, then you won’t see the rate cut.”
The J.P. Morgan outlook for 2026 puts federal reserve rates on hold through at least the first half. The update also notes that S&P 500 earnings grew 13.3% year-over-year in Q4 2025, with tech driving 61% of that gain. Solid corporate fundamentals continue to support US equities, even as inflation and geopolitical volatility top the watchlist.
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