Since this will be my last Control Panel of 2025, I want to wish all METARs a happy, healthy and prosperous New Year 2026.
The Macroeconomic outlook changed dramatically in 2025. The Trump administration put high tariffs on imported goods. Many immigrants were expelled and immigration laws were tightened. These moves are inflationary and inflation rose more than the Federal Reserve’s target. At the same time, AI became more capable and employees were displaced.
https://www.wsj.com/economy/jobs/2026-job-hiring-g…
Companies Are Outlining Plans for 2026. Hiring Isn’t One of Them.
Large employers indicate that they either want to maintain the size of their teams next year or let go of workers; ‘Everybody’s afraid for their jobs’
By Chip Cutter, The Wall Street Journal, Dec. 27, 2025
…
The corporate playbook for next year? Don’t hire.
Companies are looking to stay lean into 2026 while relying on technology to take on more tasks. Forecasters at jobs site Indeed expect relatively minimal hiring growth in 2026…
At a gathering of CEOs in Midtown Manhattan this month organized by the Yale School of Management, 66% of leaders surveyed said they planned to either fire workers or maintain the size of their existing teams next year. Only a third indicated they planned to hire… [end quote]
Hours worked by full-time and part-time employees are at a record high, finally exceeding the pre-Covid maximum. The U-3 Unemployment Rate crept up to 4.6% in November 2025. It’s been drifting up slowly since March 2022 but is far below previous recessions. In fact, the 4.6% rate is below the best recovery rate of previous economic cycles when 5% was considered the “natural” minimum unemployment rate. Initial unemployment claims are low and haven’t picked up.
The economy is growing well, though the numbers may be corrected later due to the long government shutdown.
The Atlanta Fed’s initial GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2025 is 3.0 percent on December 23. The first estimate of third-quarter real GDP growth released by the US Bureau of Economic Analysis was 4.3 percent, 0.8 percentage point above the final GDPNow nowcast. That is exceptionally strong growth. If it continues the employment situation may tighten again.
The Cleveland Fed’s Inflation Nowcast showed a sharp drop in 4Q25 but that’s probably an artifact of the government shutdown. They needed a fast CPI to adjust the yields of TIPS and I-Bonds. The real CPI isn’t a percent but an actual read of price levels.
The Treasury yield curve has steepened. The short end fell when the Fed cut the fed funds rate a couple of weeks ago. The longer maturities fell at the same time but yields are gradually increasing as the bond market realizes that cheap money may lead to increased inflation. The bond market is building in a premium for inflation and uncertainty. Longer maturity Treasury yields have stabilized recently.
The Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems, shows that financial conditions are loose and getting looser.
Debit Balances in Customers’ Securities Margin Accounts are over $1.2 Trillion – a record high which is growing fast and driving the record stock market. Margin debt makes markets vulnerable to sudden drops since margin calls often force investors to sell good stocks to pay for falling stocks, throwing out the baby with the bathwater. This is a dangerous situation since the stock market is in a historic bubble with the Price-to- earnings ratio based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio) over 40. The long-term median is 16.
The St. Louis Fed Financial Stress Index is still low but gradually getting higher. To prevent a cash crunch in banking reserves, the Fed is starting a “temporary” liquidity injection of $40 billion per month. They say this isn’t QE but it walks like a duck and quacks like a duck. Let’s see if they terminate it soon or keep it going.
The stock indexes have resumed their climb. VIX is low and declining. Internals have stabilized after climbing out of November lows. The Fear & Greed Index is in Greed. The trade is risk-on as stock and junk bond prices are climbing faster than the rise in the 10 year Treasury price.
Gold, silver and copper have popped. Silver is in a stunning run-up which may be a bubble that will pop when supply chain bottlenecks work themselves out…or maybe it will continue to climb. Care to speculate?
Oil is stable in its channel. Natgas is gradually rising. Bitcoin has been crawling along the floor for the past month.
The new tax law will go into effect in 2026. The OBBBA will inject extra cash into consumer pockets. Middle-income seniors will get a bonus deduction. Overtime won’t be taxed. The large tax refunds may lead to an economic boost in April 2026. At the same time, the government deficits will rise. The One Big Beautiful Bill Act will cost $3.4 trillion over the next 10 years, and more than $4 trillion when accounting for additional interest owed on the national debt. The rising deficits will drive Treasury bond yields higher. But that’s in the future.
https://www.irs.gov/newsroom/one-big-beautiful-bil…
https://bipartisanpolicy.org/explainer/what-does-t…
The METAR for next week is sunny.
Happy New Year!
Wendy