Economic and Market Outlook for 2026 Part One: The Economy

February 16, 2026

By Robert Wiedemer

 When looking at the year ahead, we need to start with the two most important factors affecting the market and the economy: 

1)    Government Borrowing

2)    Money Printing

Government Borrowing Slowing

At the end of 4 months US government borrowing is running about 15% less than last year.  However, the deficit could increase depending on the full impact of the tax cuts approved in 2025. 

Offsetting the tax cuts to some extent will be tariffs.  Tariffs had a big impact on the increase in the deficit last year.  Tariffs added $300 billion in revenues which caused the deficit to stop growing last year.  It remained about $2 trillion – similar to 2024. 

Tariffs represent the biggest tax increase the country has seen in recent times and their impact on reducing the growth in the deficit will continue this year.  However, it’s not clear just how much tariff revenue will be produced this year.  President Trump has been rescinding or reducing some tariffs and the Supreme Court may rule some tariffs are illegal. 

So, there are moving parts to the amount of government borrowing this year that I can’t easily predict.  What I can say is that borrowing will still be massive and more than enough to produce decent economic growth this year.  To the extent that borrowing is less than last year, it will reduce economic growth. 

Money Printing Growing

Money printing is so important because it is what determines our interest rates.  So many people seem to think the Fed controls interest rates by making a new interest rate announcement.  That’s way off the mark.  The Fed controls interest rates by printing money to buy bonds or T-bills.  That’s why you should look at money printing when forecasting interest rates.

And there’s good news about interest rates since we start the year with a big resumption in money printing.  Most of the last three years, the Fed hasn’t printed any money.  In fact, it has been destroying money at the rate of $60 billion a month.  The effects of that money destruction being clearly seen in higher interest rates.

That changed in 2025.  The Fed stopped destroying money and in December actually started printing about $40 billion per month. 

That’s huge.

It means we will not be seeing any big increase in long-term interest rates this year.

President Trump’s surprising selection of Kevin Warsh puts in doubt how much the Fed will print in the future, but at least for now Jerome Powell has done his best to get printing going again at a pretty strong rate. 

I say Warsh was surprising because he is well-known as an anti-money printer.  Also, he has a strong background at the Fed.  As Trump said, he is a central banker out of central casting.  That also means he is likely to be more independent of Trump and not as susceptible to his calls for more money printing (lower interest rates).

But this year, I think we are in good shape.  Even though Warsh may not support lots of money printing he may still increase money printing beyond the current $40 billion a month when he takes office in May.  Why?  Partly to keep rates from raising – both the overnight rate and the long term rate – but also to lower mortgage rates.  He could do that by launching a big money printing program to buy mortgage bonds. 

The big unknown for Warsh is not what he will do in the first year or two of his term, but what he will do in the last couple years of his five-year term.  I suspect he will print money as needed, like every other Fed Chairman, both liberal and conservative, but he may be more reluctant and, hence, may wait for rates to rise significantly before he acts. 

Population Growth Slowing

In most years recently, the level of government borrowing and money printing is most of what you need to know to predict economic growth.  Most of the other factors either don’t change much from year to year or they simply don’t have the impact of massive government borrowing or a big increase in interest rates.

This year is different.  A new factor has entered the economic scene: population growth. This is something we haven’t worried about for decades.  The US has had strong continuous population growth. 

However, according to the US Census Bureau the US saw its population grow at just HALF the rate in 2025 vs 2024.  In particular, for the year ended June 30, 2025 the population grew by just 1.8 million, down from 3.3 million the prior year. 

Part of the problem is the slowing birth rate which has been an issue for many years.  But the big change in growth is immigration, which for the first time in decades, may actually go negative this year.  The lack of immigration was the key factor in the big slowdown in job creation this year, declining dramatically from 1.4 million jobs created in 2024 to 180,000 in 2025. 

The Wall Street Journal editorial board has been pounding on this issue with editorials saying “U.S. population growth slowed significantly in the past year amid lower levels of immigration. Restrictionists will cheer the news, but a flagging labor force won’t make America more prosperous.”

Wall Street Journal columnist Holman Jenkins Jr. wrote “What is Reagan not remembered for?  Deportations.” In fact, President Reagan gave amnesty and created a path for citizenship to 3 million illegal immigrants. 

You may disagree with President Reagan’s immigration policy, but his economics were correct. 

Now, you can still have economic growth without population growth, but it’s a lot harder. 

How quickly or how much this lack of population growth will show up in GDP growth is hard to say, partly because we have never experienced it before.  It certainly won’t be as important as government borrowing or money printing (interest rates), but it’s now become a significant factor in GDP growth like never before.

Minor Factors

(Minor because they don’t change much from year to year or they simply don’t have the impact of massive government borrowing or a big increase in interest rates.)

 Inflation: Inflation is not always a minor factor, but it will be this year.  The Consumer Price Index is currently running at 2.4%.  Even if it rises, I don’t expect inflation to go above 3%.  So, while you may be feeling a lot of inflation, the government statistic that economists and Wall Street look at is saying we have very little inflation. 

Hence, inflation will have little negative impact on the stock and bond markets this year.

Consumer Spending: Consumers will likely spend more on utilities, insurance, healthcare, education, food and other necessities.  That will leave less money for discretionary spending for those who are not enjoying the benefits of a rising stock market and lots of home equity. 

For those who are enjoying stock market gains, I would expect continued strong spending on discretionary items such as travel and dining. 

Jobs: Job growth will likely continue to be poor, although we won’t really know until next February when the final revisions to the BLS statistics have been made.  The past two years’ negative revisions have been massive. 

One trend I think will continue is the dominance of health care in job growth. Last year over 90% of all new jobs created were in healthcare. That’s partly because the government pays for a lot of our healthcare costs and it can easily pay the rising healthcare costs of an aging nation simply by borrowing money.  That won’t change this year. 

The high percentage of job growth in health care is very reflective of an economy driven increasingly by government borrowing.  And the total lack of job growth in all the other parts of the economy is a shocking exclamation point to the importance of government borrowing in driving our economy.

Is the lack of jobs possibly due to AI?  There are no hard statistics that say it is. I will have more to say about AI in an upcoming Bull Bear Insight.

 What’s All This Mean for Our Economic Growth?

So, let’s boil all this down to a simple number.  How much will GDP grow this year?  There’s lots of optimism on the Street partially due to the hoped for benefits from tax cuts.  Goldman Sachs says we will see 2.5% growth.  In the past I have been much more optimistic about economic growth than many, including Goldman, partly due to our massive deficit.  However, this year I’m going to pull back a bit. 

I’m not sure how much the deficit will grow this year, if at all, and the lack of population growth does concern me.  So, I’m looking for around 2% growth in GDP this year. 

That’s not bad and, more importantly for my market outlook, it’s more than enough to keep the stock market happy.  In fact, even if we get less growth than 2%, I think the market will be fine.  

More on my market outlook will be coming in Part 2 of my outlook for 2026.