The US economy presents a case for being 'cautiously optimistic'

Indicators suggest weakness but it won't last long and a recovery would be good for global growth

- NOURIEL ROUBINI

This has been a bumpy year for the American economy. Although there was a massive boom in artificial intelligence (AI)-related investments, uncertainties caused by US President Donald Trump's tariffs and other policies curtailed growth in the second half of the year, and disruptions to official employment and inflation data as a result of America’s longest-ever government shutdown have further clouded policymakers' perceptions. The big question now is what 2026 will bring.

There are three possible scenarios. In the baseline case, the US will suffer a growth recession (meaning below-trend gross domestic product, or GDP, growth) for a few months, followed by a recovery and a gradual decline in the inflation rate toward the US Federal Reserve's 2% target. Think of this as 'the Goldilocks scenario' [referring, i.e., to an economy that's not too hot, nor too cool].

In the second scenario, the American economy experiences a shallow recession for a few quarters, followed by a slower return to growth than in the first scenario.

And the third scenario features a 'no-landing' outcome in which growth remains strong but inflation does not fall toward the Fed's target rate.

The Goldilocks scenario is the baseline because market discipline, good advisors and a still-independent central bank (notwithstanding Trump’s periodic threats) have already forced the White House to blink and climb down from the high tariffs announced on 2 April.