2026 begins similarly to 2025 as it relates to general economic and market sentiment
We present four economic themes for the upcoming year, from policy expectations to the digital infrastructure boom
As with all forecasts, there are risks in both directions, and we note a few to consider
We begin 2026 similarly to the year prior as it relates to general economic and market sentiment. While various pockets of worry and uncertainty persist, economists’ forecasts entering the new year are largely optimistic. Exhibit 1 tracks the median economist forecast on Bloomberg for key economic metrics, which could best be described as “steady” in 2026. It was a strong year for most financial assets in 2025, and if the economy were to track current expectations, it would be another solid year.
Exhibit 1
Below are some economic themes we will be tracking over the next 12 months, followed by potential risks and more optimistic expectations.
1. A Quieter Policy Year
One of our 2025 themes was “messier than expected.” While markets focused on the Trump administration’s views on taxes and regulation as a strong economic tailwind, we worried that other policy decisions, particularly tariffs, could prove messy. As we enter 2026, and the consequential midterm elections loom later this year, we expect less noise on the policy front. The Supreme Court has yet to rule on the legality of reciprocal tariffs using an emergency powers act. Regardless, the White House will likely try to avoid any new actions that spark a negative reaction from financial markets, whether trade, immigration, or other policy issues. If this proves true, it could lead to increased business investment, which lagged in 2025 for everything but data center build outs.
2. Digital Infrastructure Tailwind
Continuing that last thought, we saw a major uptick in digital infrastructure spending in the second half of 2025 for everything from computers and software to data and power centers. Up to this point, large technology companies had largely funded these expenditures with free cashflow, but that changed in 2025 with large corporate debt issues by companies like Oracle, Google, and Meta. We also saw a notable increase in securitized debt issuance for financing data centers, and this issuance is expected to accelerate in 2026. While there are ample worries about the speed at which AI development is occurring and the associated costs, the spending should be a tailwind for overall economic growth this year. However, the notable debt supply will act as a headwind for fixed income spreads across several sectors, including corporate debt and asset-backed securities (ABS).
3. An Ongoing Struggle for Low-Income Households
As the year progressed, there were more references to a “K-shaped” economy in articles and media reports. This describes an economic expansion where high-income households thrive and low- and middle-income households struggle. Elevated inflation hits lower earners most, and consumer delinquencies have been more elevated relative to historical trends for borrowers with lower credit scores. While inflation could slow modestly in 2026, it is unlikely that wage growth could accelerate enough to materially improve the current affordability issues for many low- and middle-income consumers. As such, credit risk will remain elevated for loans to these borrowers.
4. Another Solid Year for Depository Institutions
As we expected in our 2025 themes, the operating environment for banks and credit unions was much improved last year, and that positive momentum should carry forward into the new year. Fed rate cuts have helped lower cost of funds, and reinvestment yields remain accretive to interest margins for many institutions. As discussed above, institutions with more lending exposure to lower income borrowers will need to remain diligent and proactive on the servicing side of the house.
As always, there are many risks to economic and market forecasts, in either direction. Geopolitical risks are top of mind for many, and it is certainly a volatile environment on that front currently. While there’s much speculation about an AI bubble, we’re still likely too early in the game for a major disruption (other than an unexpected surge in interest rates). The private credit market has experienced rapid growth in recent years and has also been the subject of bubble speculation. The biggest risk to private credit in the coming year is likely less fundamental and more about big banks pulling back liquidity lines amid greater regulatory scrutiny of lending to non-bank financial institutions. Private credit funds rely heavily on this large bank funding backstop given the relative illiquidity of the underlying assets. Lastly, if inflation rates were to trend higher again, speculation of rate hikes would likely emerge and send interest rate volatility notably higher.
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