Late-Cycle Resilience Amid Divergence: The US Macro Outlook Heading into 2026

The US economy exhibited robust momentum in Q3 2025, with real GDP growth revised upward to a 4.4% annualized rate, primarily driven by strong consumer spending and supported by exports and business investment. Inflation remains persistent, with November 2025 headline PCE inflation at approximately 2.4% year-over-year and core PCE at around 2.8%, driven largely by services and housing-related costs, continuing to challenge the US Federal Reserve’s 2% target. Initial jobless claims remain low at approximately 200,000 weeklies, reflecting a stable yet cautious labor market. Globally, inflation trends diverge markedly: the Euro Area’s inflation eased to around 2.0%, Japan’s core CPI stands at 2.4%, China’s inflation remains subdued at 0.8%, and India reports a low 1.33% CPI.

The US Federal Reserve maintains a large balance sheet near USD6.5T with reserve balances around USD3.0T, indicating continued ample liquidity amid measured credit growth and a slightly softening US dollar. Global monetary policies showed divergence, with Japan holding rates at 0.75% while many advanced economies adopted a data-dependent stance. US national debt surged past USD38.4T, growing by USD2.25T year-over-year, with interest costs rising as average rates exceeded 3.3%. Equity markets posted gains led by technology and consumer discretionary sectors, while bond yields have diverged globally reflecting inflation and policy divergence.