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By Hugh Cameron
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Americans will be grappling with faster price increases and a further deterioration in employment conditions over the course of this year, according to Mark Zandi, chief economist at Moody’s Analytics.
In a series of X posts on Sunday, Zandi said that the economy in 2026 would expand at a faster rate than in 2025, but warned that it “will suffer much weaker job growth, higher unemployment, and higher inflation.”
Why It Matters
The U.S. witnessed a significant slowdown in the labor market in 2025's second half, marked by a series of weak payroll reports and unemployment ticking up to a four-year high. While inflation eased in the Department of Labor’s latest reading, Americans continue to face rising prices across a variety of goods and surveys show broad-based pessimism about the nation's financial trajectory.
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Against this backdrop, President Donald Trump has faced increased scrutiny over his handling of the economy and several Republican voices have expressed concerns that, without a major improvement in either economic conditions or messaging, the party could face a significant backlash in this year’s midterm elections.
What To Know
On Sunday, Zandi said that Moody’s forecasts for how the American economy would fare last year proved largely on the money, thanks to a number of “economic surprises” balancing each other out.
“On the upside, artificial intelligence contributed more to growth than anticipated, primarily due to the surge in AI stock prices and the resulting positive wealth effects on consumer spending by well-to-do shareholders,” he wrote. “On the downside, the Trump administration’s increase in tariffs and restrictions on foreign immigration proved more aggressive and caused greater economic damage than expected.”
For 2025, real gross domestic product (GDP) growth is expected to come in at 2.1 percent, compared with 2.8 percent in 2024, according to estimates cited by Zandi. Average monthly jobs growth and the unemployment rate, meanwhile, are both expected to have worsened from the previous year.
"The weaker job market expected in calendar year 2026 compared with 2025 is due to the Trump administration’s highly restrictive immigration policies and the resulting hit to labor supply, and the continued fallout on labor demand from the tariffs and increased productivity gains from the adoption of AI by more businesses," the economist told Newsweek.
The "lagged effects of higher tariffs," meanwhile, will be responsible for the quickening pace of inflation in 2026 compared to 2025.
"Businesses have been slower to pass through the higher tariffs, given the uncertainty regarding where the tariffs will ultimately land and worries about getting caught up in a political buzz saw," he added.
Zandi expects the economy will see stronger GDP growth in 2026—hastening to 2.5 percent—thanks largely to the tax cuts enacted as part of Trump’s signature tax bill, the stimulus effects of which will peak in the second quarter of the year.
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In its initial estimate for the third quarter of 2025, released December 23, the Bureau of Economic Analysis (BEA) found that the economy grew at an annual rate of 4.3 percent. This followed a 3.8 percent increase in the second quarter and a contraction of 0.6 percent in the first, and came in well ahead of analysts’ expectations thanks to robust consumer spending, a recovery in exports and increased government outlays.
Clement Bohr, a macroeconomist with the UCLA School of Management, told Newsweek that the discrepancy between GDP figures and weak labor market readings creates “a bit of a puzzle” when it comes to assessing the overall health of the U.S. economy at this juncture.
“How can we be growing so much if we are not adding new jobs and in fact may be losing jobs?” he said. “This can only be true if productivity growth is very high right now, but this is likely not the case.”
However, Bohr told Newsweek that GDP growth is the “noisier” of the two signals, and that “the truth is likelier somewhere in between but closer to what the employment numbers are saying.”
What People Are Saying
Mark Zandi, via X: “Despite the considerable drama, the economy’s performance in 2025 is set to come in close to what we had forecast for the year when we did our projections at the end of 2024. That is, the economy did okay in 2025, although it fell well short of its 2024 performance.”
Dean Baker, economist and co-founder of the Center for Economic and Policy Research (CEPR), previously told Newsweek: “The biggest risk, first and foremost to the U.S. economy, is a collapse of the AI bubble. The bubble is clearly driving growth at this point. If it collapses, it will mean a sharp reduction in capital spending. The loss of trillions of dollars in stock wealth will cause consumption to fall. Also, since there is heavy leverage associated with both AI and crypto we will almost certainly see some major stress in the financial system. There will be secondary effects in Europe and elsewhere in the world, but the U.S. will be by far the biggest victim of a collapse.”
What Happens Next
According to Zandi, Moody’s forecasts average monthly jobs growth slowing to 49,000 in 2026 from an estimated 125,000 in 2025, with unemployment rising to 4.6 percent from 4.3 percent. The annual rate of inflation, meanwhile, is expected to tick up to 3.1 percent from 2.9 percent.
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