Expects mixed CPI with some components down but pressures from tariffs and food prices. Believes it will leave the Fed with a modest cutting/easing bias.

Headwinds exist, but ultimate factor is AI-related investment in back half of 2026, creating upside risk to US economy. Near-term labor market has stalled. Investment and business confidence will determine economic risk.

Labor market dynamics due to supply/demand: acceleration in retirements, slowed immigration lowering breakeven rate, and tariff uncertainty. Job growth is strongest in high-AI exposure occupations. Younger worker job growth is at historical levels, not booming but not weak. Investment spending and business confidence key for 2026.

Tariffs are a significant factor. Fed is not as restrictive as they think and is fairly neutral. Combining these could lead to inflation above 2%. Focus for 2026 will shift more to growth than inflation.

Would focus on how high productivity could go over next 2-3 years, citing possibility of a late-1990s-like non-inflationary growth surge. Policy could accommodate higher growth without being restrictive, which is important for financial markets.

Research shows you do not need higher rates with higher growth if driven by productivity/innovation (like late 90s). You can have a 4% 10-year Treasury yield with inflation stable and 2.5-3% GDP because higher capacity is created.