Veronica Clark Talks Market Expectations for 2026

Summary

Bloomberg Talks: "Veronica Clark Talks Market Expectations for 2026"

Date: December 29, 2025
Host: Bloomberg
Guest: Veronica Clark, Citigroup Global Markets

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Episode Overview

This episode features Veronica Clark from Citigroup Global Markets discussing the state of the U.S. labor market, recent economic data anomalies, expectations for Federal Reserve actions in early 2026, and the complex interplay between monetary policy, labor trends, and fiscal stimulus. The conversation delves into persistent labor market weakness, the impact of rate sensitivity across business sectors, and the growing divergence between different segments of the U.S. economy.

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Key Discussion Points and Insights

1. Skepticism About Recent Labor Data

• Validity of October/November Data:
  • Recent labor market numbers, especially for October and November, are subject to skepticism due to measurement issues, possibly worsened by a government shutdown.
  • Quote:
    • “There's a lot of issues with the November October data. We don't know how much the government shutdown affected the measurement... December should be relatively clean.”
      — Veronica Clark [00:44]
• December Unemployment Rate Expectations:
  • A potential rise to 4.7% in December’s unemployment is seen as more reliable and may signal genuine labor market weakness.
  • Quote:
    • “If it stays pretty high, I think that's a more concerning sign for people.”
      — Veronica Clark [01:00]

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2. Explaining Labor Market Weakness

• Weakness Despite Strong Corporate Earnings and Low Immigration:
  • There’s confusion about why the labor market is weak given high earnings and restricted immigration.
  • Guest Analyst:
    • "I don't get it. Because you've got incredible earnings growth... There are no new people coming into this country... Companies are fighting for employees." [01:07]
• Labor Demand vs. Labor Supply:
  • The prevailing explanation is weakening labor demand rather than issues with labor supply; increased unemployment is mainly due to low hiring, not firing.
  • Quote:
    • “Labor demand has just weakened more than labor supply. And that's why you've seen the unemployment rate rising. It's this low hiring, still low firing dynamic.”
      — Veronica Clark [01:33]

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3. Role of Productivity and Technology

• Is Tech Driving Current Trends?
  • Skepticism that current productivity gains from technology are the main driver; the shift began in summer 2023 and is rooted in rate-sensitive sectors.
  • Quote:
    • “I'm a little hesitant to conclude that that's what's happening now. That might be part of the story... but this really started maybe summer of 2023.”
      — Veronica Clark [02:14]
• Manufacturing Pullback:
  • The pullback in hiring is most evident in manufacturing and small businesses, which are more sensitive to interest rates.
  • Quote:
    • “It started in more rate sensitive sectors like manufacturing. Small businesses, the pullback has really been there.” — Veronica Clark [02:24]

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4. Manufacturing Jobs and Rate Sensitivity

• Reshoring vs. Reality:
  • Despite political narratives about reshoring, the U.S. continues losing manufacturing jobs, a trend predating recent years and propelled by rate impacts.
  • Quote:
    • “We have been losing manufacturing jobs I think every month this year. But that predates this year also, and it is a rate sensitive sector.”
      — Veronica Clark [02:47]

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5. Economic Bifurcation and ‘K-shaped’ Recovery

• Winners and Losers:
  • Clear bifurcation exists across sectors; larger firms and high-income consumers remain robust while small businesses and rate-sensitive sectors suffer.
  • Quote:
    • “There's this bifurcation across all parts of the economy... the smaller businesses who are more rate sensitive, I think rates are restrictive here.”
      — Veronica Clark [03:13]
• Contradictory Signals:
  • High-profile bankruptcies coincide with thriving firms striking large deals, highlighting this divergence.

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6. Federal Reserve Policy Outlook for 2026

• Likelihood of Rate Cuts:
  • If the unemployment rate hits 4.7% in December, Clark expects the Fed to cut rates in both January and March.
  • Quote:
    • “We are penciling in another cut in January, another one in March. And it's just this kind of idea that you have clearly gotten more concerned on the labor market side of your mandate.”
      — Veronica Clark [03:41]
  • The Fed’s mandate to balance inflation and employment could tip further towards employment concerns if reliable data supports labor market softness.

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7. Risks of Reigniting Inflation

• Potential Stimulus & Loose Policy:
  • The host questions if dual rate cuts, generous tax refunds, and new fiscal stimulus in early 2026 could rekindle inflation.
  • Quote:
    • “Don't you risk reigniting inflation that never died?”
      — Host [04:17]
• Clark’s Perspective:
  • Clark doesn’t see an immediate inflation risk, particularly since housing costs (usually first to reflect resurgent demand) are slowing.
  • The lag in shelter inflation will continue to suppress headline inflation throughout the year.
  • The real determinant for spending remains labor income—and that’s already decelerating.
  • Quote:
    • “I'm not so concerned about that right now. The main determinant of if people are spending or not is if they have a job and what their labor income is, and that we have seen slowing already.”
      — Veronica Clark [04:33]

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Notable Quotes & Memorable Moments

• On data skepticism:
  • “There's a lot of issues with the November October data. We don't know how much the government shutdown affected the measurement...” — Veronica Clark [00:44]
• On labor market dynamics:
  • “Labor demand has just weakened more than labor supply... low hiring, still low firing dynamic.” — Veronica Clark [01:33]
• On bifurcation:
  • “There's this bifurcation across all parts of the economy.” — Veronica Clark [03:13]
• Fed’s direction for 2026:
  • “We are penciling in another cut in January, another one in March.” — Veronica Clark [03:41]

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Important Timestamps

• 00:44 – Data skepticism and year-end unemployment projections
• 01:07 – Questioning why labor is weak despite strong fundamentals
• 01:33 – Weakening labor demand identified as primary issue
• 02:14 – Productivity and technology’s role assessed
• 02:47 – Manufacturing jobs continue to decline
• 03:13 – K-shaped recovery and bifurcation of the economy
• 03:41 – Fed policy expectations: rate cuts ahead
• 04:17 – Inflation risks in light of dovish monetary and fiscal policy
• 04:33 – Clark’s stance: Labor income is the core concern for consumer health

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Conclusion

Veronica Clark, representing Citigroup, provides a cautious but clear-eyed view of the U.S. economy as 2026 approaches: labor market weakness is deeply rooted in softening demand, not a supply crisis, and upcoming rate cuts are likely as the Fed pivots toward its employment mandate. She’s less worried about inflation, citing cooling housing markets and the primacy of income in driving consumption, but warns that continued low hiring could eventually break the balance and lead to layoffs. The episode balances technical analysis with practical economic storytelling, giving listeners a clear sense of the major crosscurrents shaping policy and markets in early 2026.

Transcript

[Podcast Narrator]

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[Veronica Clark]

Bloomberg Audio Studios Podcasts Radio News.

[Host]

We continue to expect another slight increase in the unemployment rate to 4.7% in December. Veronica joins us now. Veronica, thank you so much for being here.

[Veronica Clark]

Thanks for having me. Happy holidays.

[Host]

I'm just wondering from your perspective, how much the data that we got earlier this month was actually valid and that people are discounting it too much.

[Veronica Clark]

Yeah, I think there's a lot of that going on. And if we saw the unemployment rate next Friday, you know, the first week back, back to work, if we saw that at something like 4.7, I think people will believe it a lot more because, yeah, there's a lot of issues with the November October data. We don't know how much the government shutdown affected the measurement of those months. But December should be relatively clean. And if it stays pretty high, I think that's a more concerning sign for people.

[Guest Analyst]

How come this labor market is weak? I don't get it. Because you've got incredible earnings growth. Right. So corporate America is doing very well and there are no new people coming into this country. Right. There's no immigration. The demographics trend, like everyone's old. There are no young people like it should be. Companies are fighting for employees.

[Veronica Clark]

Yeah, yeah. I mean, there's been this issue of you, is it labor supply? Is it labor demand? We've been dealing with this for a couple of years now. You know, back in 2024, when we saw the unemployment rate increase, the excuse was also, it's more immigration. I don't think we can use immigration to explain the bad, you know, different sides of immigration to explain bad data. But I think what's happened is that labor demand has just weakened more than labor supply. And that's why you've seen the unemployment rate rising. It's this low hiring, still low firing dynamic. But I would be worried that low hiring can only last for so long before maybe you do see some layoffs.

[Guest Analyst]

Is that because technology and I have made the few employees that companies hold on to more productive?

[Veronica Clark]

I'm a little hesitant to conclude that that's what's happening now. That might be part of the story. Absolutely. And we could see larger productivity gains from a longer run. But this really started a couple of years ago. This really started maybe summer of 2023 when we saw this pullback in hiring and I do worry that it started in more rate sensitive sectors like manufacturing. Small businesses, the pullback has really been there. And so, yeah, it doesn't necessarily matter. If equities are doing well and earnings are fine, small businesses are going to be more rate sensitive.

[Guest Analyst]

We're bringing manufacturing. I thought we were bringing manufacturing back.

[Veronica Clark]

We have been losing manufacturing jobs I think every month this year. But that predates this year also, and it is a rate sensitive sector.

[Host]

Well, this sort of speaks to the question of is the Fed restrictive and this is the big debate. Restrictive for who? Because on one hand you do see companies filing for bankruptcy at the fastest clip going back to 2020. On the flip side, you see companies screaming ahead. Digital bridge being purchased for $4 billion, 15% premium. So can you square that?

[Veronica Clark]

Yeah, I mean there's this bifurcation across all parts of the economy. I think there's a lot that has already been said about the K shape economy for consumers. You know, higher income consumers are spending, but we definitely see that in sectors also. And you know, the smaller businesses who are more rate sensitive, I think rates are restrictive here.

[Host]

So you expect a significant number of rate cuts. Let's just postulate that we do see an increase further in the unemployment rate to 4.7% as you expect. What does that mean for January 28th?

[Veronica Clark]

Yeah, I think they're going to be cutting. Really? Yeah. So we are penciling in another cut in January, another one in March. And it's just this kind of idea that you have clearly gotten more concerned on the labor market side of your mandate. If the unemployment rate is something like 4, 7 that we think we'll see in December, we will have hopefully more inflation data by March that we trust again, you know, early 2026 data. If you're seeing inflation slowing and data that you believe again and you're less concerned on the inflation side of the mandate, you're more concerned on employment, why wouldn't you be at the midpoint of neut, which would be cuts in January and March to get you there?

[Host]

The counter argument is if you get rate cuts, potentially two by the end of March, at the same time that you have the one big beautiful bill, the tax refunds and potentially an additional $2,000 stimulus or whatever else might be coming down the pike, don't you risk reigniting inflation that never died?

[Veronica Clark]

Yeah, I'm not so concerned about that right now. You know, the inflation driven by lower rates, more stimulative monetary policy, you would expect to see it first in a sector like housing and you definitely don't see that yet. You don't see those signs yet. Home price prices have been slowing. New rents have been slowing a lot. We already know that in the inflation data there is this lag issue of shelter inflation that's going to, I think, be slowing all of next year. All of the potential fiscal stimulus, you know, maybe larger tax refunds, the business tax incentives that were part of the bill from the summer, those can help support growth. But I would worry that the main determinant of if people are spending or not is if they have a job and what their labor income is, and that we have seen slowing already and you would think consumption would slow them too.

[Host]

Veronica Clark, thank you so much for being here and for holding down the fort for the economics team at Citigroup. Veronica Clark of Citigroup Global Markets this.

[Podcast Narrator]

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