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Here are my thoughts for the year ahead.

#1: Trump will Lose His Supreme Court Battle on Reciprocal Tariffs

Expect a 6-3 margin against Trump, possibly 7-2. I rate this a 75 percent chance.

Then If he loses, then there is about a 60 percent chance of at least some of the money will have to be refunded.

Trump will moan the SC is killing the best economy in history. He will also say that the ruling will have no impact at all. This is illogical of course, but seriously, expect both statements.

Trump will pursue other avenues of doing the same things with mixed success (using the word success in terms of what Trump wants, not what’s good for the country).

#2: Trump will Lose His Supreme Court Battle on Birthright Citizenship

Expect a 7-2 vote against Trump. 9-0 would not be a surprise.

I rate this a 90 percent chance.

#3: Trump will lose his Supreme Court battle over the right to fire Fed governor Lisa Cook.

Expect a 6-3 vote against Trump. I rate this a 80 percent chance.

#4: AI will have minimal impact in 2026

There will be some job losses. And some speculation fails. But don’t any extreme job losses or huge numbers of AI-related bankruptcies. Extreme events are unlikely.

I rate this an 75 percent chance.

#5: Tariffs Will Bite

Businesses that can will pass along more costs. In contrast to AI, we will see job losses mount.

Small business bankruptcies soar.

Trump will blame Biden, the Fed, and the Supreme Court for everything bad that happens.

I rate this an 80 percent chance.

#6: Republicans Lose the House

Voters do not believe we have best economy in history. And they will take it out on Republicans in the midterm elections.

It will be a low turnout affair as non-MAGA republicans show no enthusiasm to vote.

I rate this an 75 percent chance.

#7: Trump persuades Russia and Ukraine to accept a peace deal.

This will be Trump’s key accomplishment in 2026.

I rate this an 60 percent chance.

#8: Health Care makes the Fed’s life miserable.

Health care will add 1.5 to 2 percentage points to he PCE. And that’s the Fed’s preferred measure of inflation.

I rate this a 70 percent chance.

Unless the economy collapses everywhere else killing demand (and it could), the Fed will have a difficult time cutting rates.

Consumers are already upset over inflation. Health care will make 24 million people on Obamacare miserable.

#9: Finally a Recession

The Fed is concerned about job losses to the downside and inflation to the upside. I agree with the Fed on both scores.

AI will not be a savior for the economy. Nor will the Fed. The economic damage from tariffs and deportations will finally sink the economy.

I don’t have a strong conviction about recession. Call it 55 percent.

Right now we have a K-shaped economy propelled by AI spending and health care spending. The wealthy are propping up aggregate spending.

How much longer consumer spending stays robust depends on the stock market. I have no firm conviction. But as long as the stock market stays elevated, the wealthy will keep spending.

That said, I do have a strong conviction of the type of recession when it finally happens: Long and shallow, the opposite of Covid which was short and extremely deep.

The Fed will be constrained in action because of health care inflation, because a weak dollar adds to inflation, and because debt levels and rising debt pressures the dollar.

#10: The Unemployment Rate

The unemployment rate heads up to 5.5 percent. I rate this a 70 percent chance.

That’s less than a full percentage point rise from where we are.

5.5 percent unemployment is not a huge number. Demographics come into play. Retiring boomers keep the rise to a minimum.

This call is related to a long, mild recession but it can happen even in the absence of recession.

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