"Uncertainty" marked this year's economy. What about 2026?

Summary

Marketplace Morning Report – "Uncertainty" Marked This Year's Economy. What About 2026?

Date: December 29, 2025
Host: Nova Safo (in for David Brancaccio)
Notable Guests: Stephen Juneau (Sr. Economist, Bank of America); Nancy Marshall Genser; Justin Ho

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Episode Overview

This special year-end episode reflects on the economic volatility of 2025—dominated by tariffs and policy uncertainty—and looks forward to 2026. Nova Safo interviews Bank of America’s Stephen Juneau to unpack what might lie ahead for inflation, the labor market, and U.S. growth. The episode also reports on a legal shift in the Trump administration’s approach to corporate DEI programs, and explores the heating market for adjustable-rate mortgages as Americans respond to fluctuating interest rates.

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Key Discussion Points & Insights

Reflecting on 2025's Economic Turbulence

• Theme: 2025 was defined by uncertainty, particularly surrounding President Trump’s tariff hikes (the highest in nearly a century).
• Main Question: As the year ends, what economic themes and challenges might define 2026?

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Economic Prognosis: Stephen Juneau, Bank of America

Timestamps: [01:19]–[04:04]

Anticipating 2026’s Buzzword: Outperformance

• Stephen Juneau:
  • “Continued outperformance, maybe? That’s two words, obviously.” ([01:27])
  • Predicts the U.S. economy will keep outperforming global peers and growing above trend.
• Reasons for Optimism:
  • Expansionary fiscal policy
  • Potentially reduced tariff-induced uncertainty
  • A likely easing Federal Reserve and lowered interest rates
  • Ongoing capital expenditures fueled by AI investment
  • “There’s a lot of tailwinds for next year… expansionary fiscal bill… easing Fed… and then you have the AI-related CapEx that should continue next year.” ([01:34])

Inflation and Labor Market Outlook

• Inflation:
  • Juneau believes inflation will ease somewhat as tariff effects diminish in late 2026, but it will remain above the Fed’s target.
  • “Inflation… is going to continue to be a problem for the Fed, maybe coming down a little bit… But largely speaking, you’re still going to have inflation above targets.” ([02:17])
• Labor Market:
  • Job growth slowed in 2025 due to policy uncertainty and lower immigration reducing labor supply.
  • Outlook for 2026 suggests a rebound if uncertainty subsides, encouraging broader business hiring and investment.
  • “Another reason for the slowdown in job growth is… labor supply. We've had less immigration this year. That leads to a negative labor supply shock that pulls down job growth.” ([02:56])

Supreme Court Tariffs Decision

• Ongoing Uncertainty:
  • Possibility that the Supreme Court overturns Trump’s tariffs.
• Predicted Response:
  • Administration would likely pivot to different legal authorities to maintain tariffs.
  • Businesses could receive tariff refunds, injecting temporary economic stimulus.
  • “If you got even more growth above potential, what that could mean is that inflation is actually going to be even more stubborn.” ([03:50])

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Policy Watch: False Claims Act Targeting DEI

Reporter: Nancy Marshall Genser
Timestamp: [04:20]–[05:49]

• New Use of False Claims Act:
  • The Trump administration is using Civil War–era fraud statutes to investigate diversity, equity, and inclusion (DEI) policies at firms receiving federal funds.
  • “The Justice Department has started False Claims Act investigations into US Companies use of diversity initiatives in hiring and promotions.” ([04:56])
• Implications:
  • DOJ argues that companies with DEI programs could be committing fraud if they receive federal funding.
  • This could lead to lawsuits and potential financial penalties against companies promoting DEI under federal contracts.

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Housing Market Update: Adjustable Rate Mortgages on the Rise

Reporter: Justin Ho
Timestamps: [06:19]–[07:54]

• Increasing Popularity:
  • Demand for adjustable-rate mortgages (ARMs) has more than doubled in the past year (Mortgage Bankers Association).
  • Borrowers are attracted by lower initial rates―up to a full percent lower than fixed-rate mortgages.
  • Mike Fratantoni: “If a borrower takes an adjustable rate loan… they can save almost a full percentage point in rate.” ([06:52])
• Risks & Protections:
  • The danger of rate shock (seen in 2008) is minimized by stricter post-crisis lending standards.
  • Mark Fleming: “As a result, while there is adjustment of payment, it’s not nearly as shocking… as recession old Plus.” ([07:25])
• Borrower Calculus:
  • Many borrowers plan to move or refinance within five or seven years, accepting the risk in exchange for lower rates now.
  • “I think the calculus that people make is, well, I’m likely to move within five or seven years anyway.” ([07:39])

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Notable Quotes & Memorable Moments

• Nova Safo to Stephen Juneau: “When it comes to the economy, what do you expect will be the most spoken word that you will utter in 2026?” ([01:21])
• Stephen Juneau: “There’s good reason to expect that we can continue to see the US Economy just outperform its peers.” ([01:34])
• Stephen Juneau on persistent inflation: “If you got even more growth above potential, what that could mean is that inflation is actually going to be even more stubborn.” ([03:50])
• Nancy Marshall Genser: “The Justice Department has started False Claims act investigations into US Companies use of diversity initiatives in hiring and promotions.” ([04:56])
• Mike Fratantoni (Mortgage Bankers Association): “They can save almost a full percentage point in rate.” ([06:52])
• Mark Fleming (First American): “It’s not nearly as shocking of the arms of recession old Plus.” ([07:25])

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Timestamps for Key Segments

• 2026 Economic Outlook Interview: [01:19]–[04:04]
• False Claims Act Shift & DEI: [04:20]–[05:49]
• Housing Market & Adjustable Rate Mortgages: [06:19]–[07:54]

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Summary Tone

The episode maintains Marketplace’s trademark: brisk, accessible, and analytically sharp reporting, focusing on what real economic uncertainty means for policy, business, and American households. Nova Safo’s interviewing style is direct and curious, while expert guests offer cautious optimism, stressing both risks and opportunities in the coming year.

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For Listeners Who Missed It

This episode is a round-up of the crucial economic developments from 2025, with analysis pointing toward persistent—but possibly shifting—uncertainty in 2026. It’s valuable for business-minded listeners who want a concise but thorough perspective on policy, markets, and the practical concerns shaping the next year.

Transcript

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[Nova Safo]

The economic year that was and the year to come for Marketplace. I'm Nova Safo in for David Brancaccio. We're taking stock of 2025 as we look toward what might be in store for the economy in the year ahead. The biggest economic story, of course, has been tariffs. President Trump raised them to their highest rate in nearly a century. Consequently, the word economists uttered the most this year was uncertainty. That said, we wanted to see which economist was brave enough to look uncertainty in the eye and make some predictions for 2026. And bank of America senior economist Stephen Juno obliged. Welcome to the program.

[Stephen Juneau]

Thanks for having me on.

[Nova Safo]

When it comes to the economy, what do you expect will be the most spoken word that you will utter in 2026?

[Stephen Juneau]

Continued outperformance, maybe? That's two words obviously.

[Nova Safo]

But yeah, okay, go on, explain yourself.

[Stephen Juneau]

Well, I think when we look to next year, there's good reason to expect that we can continue to see the US Economy just outperform its peers, continue to grow kind of above trend. There's a lot of tailwinds for next year. You have an expansionary fiscal bill. You have hopefully less tariff uncertainty, less uncertainty relative to this year. You have an easing Fed, so lower rates should help on the margin. And then you have the AI related CapEx that should continue next year. That we saw was obviously a big reason for kind of the resiliency this year in the face of all this uncertainty.

[Nova Safo]

Where do you see the inflation headed and where do you see the job market, the labor market headed in the next six to 12 months?

[Stephen Juneau]

So inflation I think is going to continue to be a problem for the Fed, maybe coming down a little bit as the tariff related inflation subsides in the second half of the year. But largely speaking, you're still going to have inflation above targets. And then the labor market I think is a little bit more interesting. We've obviously seen job growth slow this year. Some of that is due to the fact that we had this uncertainty shock. Obviously, when businesses are faced with uncertainty, they pull back on hiring plans, pull back on investment plans. But another reason for the slowdown in job growth is, of course, labor supply. We've had less immigration this year. That leads to a negative labor supply shock that pulls down job growth as well. Looking to next year, I think the thing that will change for the labor market is that you'll have less uncertainty. Businesses are not going to face the same volatile policy environment that we face this year, and they'll be able to kind of broaden out their hiring.

[Nova Safo]

One thing that is kind of an uncertainty overhang still is this impending decision from the Supreme Court about the legality of the bulk of President Trump's tariffs. What happens if the Supreme Court reverses and strikes down the tariffs?

[Stephen Juneau]

What we think will happen is that the administration will pivot to other authorities. They're going to be able to prevent a very steep decline in the effective tariff rates. So tariff rates won't go down as much as they would if IPA has just gone completely. There are other ways that you can keep tariff rates elevated. And you'll also see refunds go out to businesses who paid these tariffs. So that's a bit of stimulus, too, Unfortunately. What that means is if you got even more growth above potential, what that could mean is that inflation is actually going to be even more stubborn.

[Nova Safo]

Senior economist at bank of America, Steven Juneau, thank you very much for joining us.

[Stephen Juneau]

Thanks for having me on.

[Nova Safo]

The Trump administration is expanding its use of the False Claims act to investigate diversity, equity and inclusion initiatives at major US Companies. That's according to a report in the Wall Journal. Marketplace's Nancy Marshall Genser has more.

[Nancy Marshall Genser]

The False Claims act was enacted in 1863. President Abraham Lincoln signed it into law during the Civil War after it became clear that some federal contractors were providing substandard products and services to the troops. The law says that anyone who knowingly submits or causes the submission of false claims to the government has to pay three times the government's damages, plus a penalty pegged to inflation. Private citizens or whistleblowers can bring False Claims act suits on behalf half of the government. They can get part of any award if they win. The Trump administration has some novel uses for the False Claims Act. Last May, it announced it was using the law to investigate DEI policies at federally funded universities. Now the Wall Street Journal says the Justice Department has started False Claims act investigations into US Companies use of diversity initiatives in hiring and promotions. The Journal says the DOJ is arguing that companies that receive federal funding will, while sticking to DEI initiatives, are committing fraud against the government. I'm Nancy Marshall Genser for Marketplace.

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[Nova Safo]

Later this morning, the national association of Realtors is scheduled to report the number of pending home sales for the month of November. The NAR has previously said that home sales are picking up thanks in large part to lower mortgage rates. That's 30 year fixed mortgages and adjustable rate mortgages. And as Marketplace's Justin Ho reports, demand for the adjustable variety has been rising.

[Justin Ho]

Applications for adjustable rate mortgages have more than doubled over the past year, according to the Mortgage Bankers Association. Its chief economist Mike Frattantoni says that demand comes down to savings.

[Mike Fratantoni / Mark Fleming]

If a borrower takes an adjustable rate loan where Instead of a 30 year fixed rate it's fixed for the first five or seven years, they can save almost a full percentage point in rate.

[Justin Ho]

That advantage over today's fixed rate mortgages could always go away if interest rates rise in five or seven years and homeowners don't refinance. The shock of rising interest rates on adjustable mortgages contributed to the 2008 financial crisis. But Mark Fleming, chief economist with First American, says post crisis regulations tightened up lending standards for adjustable rate mortgages.

[Mike Fratantoni / Mark Fleming]

As a result, while there is adjustment of payment, it's not nearly as shocking of the arms of recession old Plus.

[Justin Ho]

Fleming says many borrowers taking out adjustable rate mortgages right now aren't worried about what'll happen when those interest rates adjust.

[Mike Fratantoni / Mark Fleming]

I think the calculus that people make is, well, I'm likely to move within five or seven years anyway.

[Justin Ho]

In other words, Fleming says many borrowers are betting that the rewards of an adjustable rate mortgage are worth the risks. I'm Justin Ho for Marketplace.

[Nova Safo]

And I'm Nova Safo with the Marketplace Morning Report. From APM American Public Media.

[Rima Grace]

Hey everyone, you already listen to Marketplace podcasts so you know that it's important to understand how economic forces shape our lives. And that feels especially important now as we're all trying to make sense of the latest headlines. I'm Rima Grace, host of Marketplaces. This is Uncomfortable, a show that explores how money bumps up against our relationships, our choices, and the parts of life we don't always say aloud. And starting January 15th, we are back every single week. New stories, new questions, and the kind of conversations that make you feel less alone in this quickly changing economy. We're tackling questions like should I turn my hobby into a money making side hustle? How do I deal with layoff anxiety? Or what do we owe our parents financially? Don't miss an episode. Subscribe to this is Uncomfortable from Marketplace. Wherever you get your podcasts.