You need a clear plan as price pressures run above target into the coming year. Tariffs, a softer dollar, and tight labor supply are the main drivers that will shape returns and cash flow for everyday investors like you.

Expect a prolonged, moderate rise in prices that nudges CPI higher through late 2026, so your bond and cash assumptions should shift toward resilience. That means leaning on income, careful duration choices, and selective credit rather than reaching for yield alone.

Because sourcing shifts mute some tariff shock, the initial consumer pass-through is blunted but still raises checkout prices. A weaker dollar also tilts the case toward international and alternative assets if you want diversification.

Key point: build a plan around persistent, moderate price pressure and uneven sector growth. Keep your information flow focused on tariffs, labor supply, and fiscal moves—they are the most investable levers for your next allocation decisions.

Takeaway 1: Reset real-return expectations and favor income-oriented strategies.

Takeaway 2: Diversify internationally and consider inflation hedges like TIPS or barbell bond approaches.

Fast take: Your 2026 inflation outlook and why it matters now

You should start positioning now: consensus expects reasonable U.S. growth supported by AI, with the ECB mostly on hold and the Fed moving toward neutral slowly. Markets are pricing a slow path of rate cuts, not a quick drop, so your funding costs and cash yields are likely to stay elevated for a while.

What this means for you:

• Don’t wait for late confirmation. With prices still above target, acting earlier helps you lock in income and manage duration risk.
• Expect a softer dollar. FX strategists favor carry trades, so review your currency exposure and home bias.
• Policy is a live risk. Tariff rebates or fiscal gestures could swing the outlook, and households may save any checks instead of spending them.
• Watch market internals. Liquidity and spreads will show the next move more clearly than headlines.

Keep your information flow tight: follow rate guidance, consumer price trends, and market signals. That focus will help you shape allocations that are resilient to sticky core services and slower moves from policymakers.

The 2026 baseline: A “stagflation lite” backdrop for the United States

A mild mix of sticky prices and weak momentum will define the macro backdrop for the year ahead. You should plan for core readings to remain elevated and for growth to lag its long-run trend.

Inflation path: CPI and core running above the 2% target into late 2026

Core measures are the main story. Core inflation is set to stay above 3% y/y for much of the year, and core services ex-housing rarely turns negative. Owners’ equivalent rent will likely lag and offer little relief.

GDP growth: Below-trend expansion with uneven sector momentum

GDP growth looks softer than the ~2% trend. Labor supply is constrained by lower non‑citizen inflows and retirements that removed nearly 3 million workers since 2024.

• Core goods added 0.3 ppt to core CPI in Q3 and tariff passthrough should peak around Q2; shelves will feel firmer prices for a while.
• Unemployment may plateau near 4.5% while health care and government drive payroll gains, leaving trade-linked sectors under stress.
• For you: favor quality equities, select credit carefully, and keep duration modest since rates moves are capped by persistent price pressure.

“Plan around sticky services and uneven sector returns; cash flow durability matters more than momentum.”

Tariffs and prices: Mapping the inflation impact 2026 from trade policy

Headline duties tell one story, but your checkout bill tells another. The average static tariff on imports is about 17.4%, yet effective tariffs should peak nearer to 14.4% as firms reroute supply.

From headline rates to effective rates

China’s share of imports fell from 13% to 8%, carrying a 39.7% average tariff. Mexico rose from 15% to 16% with an 11.6% rate. That shift trims the headline number but still raises costs for many goods.

Pass-through timing

Expect roughly 50% of the added duty to reach consumers. It starts about three months after implementation and phases in over the next three months. That staggered pass-through can keep goods prices firm even as headlines calm.

What you’ll feel at checkout

Core goods already added about 0.3 ppt to core CPI in Q3. Full pass-through likely peaks around Q2, adding roughly 1.0 ppt to the consumption deflator in late Q4 and into the following spring.

“Supply shifts lower the headline tariff but do not remove the checkout pinch.”

Medida	Headline	Effective	Consumer timing
Avg tariff rate	17.4%	~14.4%	Immediate sourcing change
China share / tariff	13% / 39.7%	8% / 39.7%	Reduces headline weight
Mexico share / tariff	15% / 11.6%	16% / 11.6%	Moderates price rise
Pass-through	50% assumed	Phased 3–6 months	Peaks by Q2

• Action for you: favor firms with diverse suppliers and pricing power.
• Watch currency moves: a weaker dollar amplifies the tariff bite.

Policy cross-currents: Fed cuts, fiscal shifts, and the dollar’s direction

A mix of Fed easing, fiscal refunds, and a softer dollar will create pockets of opportunity and risk for investors.

Rates and basis points: The Fed is expected to trim the funds rate by about 50 bps this year and 75 bps next, bringing the policy rate to just over 3% by the end of next year.

That sequence helps lower financing costs for borrowers but does not guarantee big bond capital gains when CPI runs above target. On a basis-point level, cuts favor floating-rate exposure and laddered maturities over a full long-duration bet.

Taxes, transfers, and spending

The OBBBA cuts individual tax bills by roughly $24B this fiscal year and $131B next. Back-dated breaks and a higher SALT cap mean sizable refunds and a lift to disposable income early next year.

Those refunds and any pre-midterm stimulus could boost discretionary spending in select retail categories. Keep an eye on which cohorts gain most of the extra income when sizing sector exposure.

Currency watch

The trade-weighted dollar has slid about 7% YTD, nudging non-energy import prices higher and complicating your inflation and growth outlook.

For you, that means revisiting currency hedging and adding international or alternative assets as buffers. Elevated deficits near 6% of GDP support near-term growth but add long-term risks for interest and the dollar.

“Track refunds, SALT flows, and weekly dollar trends—those signals connect directly to sector earnings and your portfolio outcomes.”

• Expect cuts to ease borrowing costs; avoid assuming large bond price gains.
• Refunds and tax changes can lift spending in specific pockets.
• A weaker dollar argues for diversification into non‑USD exposures.

Households, income, and spending: Who drives consumption in 2026

How dollars flow between rich and middle households will shape consumer demand and sector winners this year.

The top 10% now account for nearly half of aggregate consumption. Their income mixes more to dividends, interest, and rent. A higher SALT cap to $40,000 boosts their after-tax cash and can lift luxury and discretionary spending.

The top 10% vs the middle: Income sources, wealth effects, and demand

Middle-income households face the heaviest squeeze from rising prices and get less help from SALT. That shifts demand toward staples and away from big-ticket items.

Labor market dynamics: Immigration, retirements, and wage pressure

Immigration limits and retirements removed ~3 million workers since 2024. Unemployment sits near 4.5% and wage growth is about 3.9% YoY.

For you: tighter supply keeps services pressure steady and supports health care and government hiring, while trade-heavy sectors may lag.

“A stock correction could dent high‑end consumption and tighten risk for luxury and consumer cyclicals.”

Métrico	Valor	Investor takeaway
Top 10% share of consumption	~50%	Favor firms with wealthy customer bases
SALT cap	$40,000	Boosts high-end disposable income
Social Security COLA	~2.7%	Supports retiree consumption in services
Labor change	-3M workers	Wage support, sticky services prices

Translating outlook to markets: Bonds, equities, and your allocation

Positioning your portfolio now helps you weather persistent price pressure and shifting policy paths. Keep allocation simple: favor carry, diversify away from single‑beta bets, and size positions around rate sensitivity.

Bonds in an above-target CPI world: Limited capital gains, duration risk

You should assume limited upside in high‑grade bonds while core inflation runs above target. Prioritize carry, curve trades, and selective TIPS instead of a long‑duration stake.

Duration cuts both ways: rate cuts are expected (about 50 bps this year, 75 bps next), but sticky services compress your margin for error. A barbell or ladder can help manage basis‑point sensitivity.

Equities and asset prices: Growth tailwinds vs valuation and policy risks

Growth from AI infrastructure and resilient high‑income consumption supports earnings, yet valuation and policy risks can cap upside. Lean into quality cash flows and firms with pricing power.

International and alternatives: Broadening beyond U.S. beta and dollar exposure

A softer dollar favors foreign returns and alternatives as true diversifiers. Goods inflation peaking into Q2 2026 gives a window for margin relief, so prefer companies with diversified sourcing.

For a wider view, see the public markets outlook.

“Size positions around basis‑point sensitivity and persistent services pressure to protect portfolio real returns.”

Scenario watch: What could change the trajectory next year

A handful of tail risks could rewrite the roadmap for your portfolio next year. These scenarios matter because they change demand, supply, and the rates path that shapes returns. Keep a short list of triggers so you can act fast.

Fiscal surprises: stimulus checks, tariff court rulings, and politics

A non-base-case sees $2,000 stimulus checks to ~150 million Americans — roughly 1% of GDP. That kind of stimulus would boost short-term growth and consumer spending.

Selective tariff cuts or a court decision that removes duties could ease goods price pressure. But rebuilding tariffs later would be messy and slow.

• If stimulus or rebates hit: expect a quick demand snapback that could push prices up and test your duration bets.
• If tariffs fall: goods costs may ease and cyclical sectors could get relief.

AI and energy constraints: productivity hopes vs near-term price pressure

Large AI investment keeps investment strong, yet data centers strain power networks. Local grid limits can raise energy costs and squeeze margins for utilities and REITs.

Productivity gains may come later. In the near term, these bottlenecks add to price pressure and create tactical risks for your market exposure.

“Map your what‑if plan around basis‑point sensitivity, demand snapbacks, and supply bottlenecks so you can pivot quickly.”

Desencadenar	Likely short run	Investor note
$2,000 stimulus (~1% GDP)	Demand spike, higher growth	Favor cyclicals with pricing power
Tariff legal change	Lower goods pressure	Lift global-sensitive sectors
AI build & grid limits	Higher near-term energy costs	Watch utilities, data-center REITs
Faster rate cuts (75 bp)	Lower real rates, weaker dollar	Reassess duration and hedges

Conclusión

Your best edge this cycle comes from disciplined positioning, not direction calls. You should favor durable cash flows, prudent duration, and selective cyclical exposure as growth remains muted and prices stay above target. Keep some inflation hedges while relying on income to carry much of your bond return.

Policy and fiscal flows will matter more than headlines. Government tax refunds, SALT changes, and tariff rulings will shape consumption and goods pricing. Watch deficits and the term structure—those forces affect valuations across markets.

Use international and alternative investment to broaden diversification if the dollar weakens. Keep a concise information checklist (tariff rulings, refund data, wage prints, energy) and set clear thresholds for adding risk or trimming positions.

For a wider view on the near-term market outlook, see the market outlook.