by The Gould Asset Management Team
Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the First Quarter of 2026. The excerpt is posted here for the benefit of our blog subscribers.
US Enters 2026 on Uncertain Footing
The US economy expanded at an annualized rate of just 0.5% in the fourth quarter of 2025, down sharply from 4.4% in the third quarter. A 43-day partial government shutdown that began in October subtracted roughly one percentage point from growth, while exports and business investment also weakened.
Consumer spending stalled in the early months of 2026. Inflation-adjusted spending was flat in January and rose just 0.1% in February, with motor vehicle purchases providing much of the lift. Rising energy costs tied to the Iran conflict pose additional headwinds ahead.
The job market was uneven through the quarter, but the broader trajectory points to gradual cooling. Nonfarm payrolls rebounded from a 133,000 decline in February to a 178,000 gain in March, though net job creation for the quarter was minimal. The unemployment rate edged down to 4.3%, but the improvement reflected a shrinking labor force rather than stronger hiring.
Manufacturing activity turned positive in January for the first time in nearly a year and expanded for a third consecutive month in March. The ISM Manufacturing PMI rose to 52.7 in March, its highest reading since August 2022. However, cost pressures intensified, with the ISM prices index jumping to 78.3, its highest level since June 2022, reflecting the impact of tariffs and elevated energy costs on input prices.
The Fed’s Holding Pattern
The Federal Reserve held the federal funds rate steady at 3.50% to 3.75% at both of its meetings during the quarter, citing elevated economic uncertainty and inflation that continues to run above its 2% target. The March decision was nearly unanimous, with only one dissenting vote in favor of a cut.
Fed Chair Jerome Powell acknowledged the economy is performing reasonably well, while noting that the ongoing conflict in the Middle East has meaningfully clouded the outlook. Powell described the current rate range as broadly neutral, neither stimulating nor restraining growth, and emphasized a data-dependent approach, offering no preset path for future adjustments.
The Fed’s latest projections reflect a modest upgrade to the growth outlook alongside higher inflation expectations. Officials now project GDP growth of 2.4% in 2026, up from 2.3% in December, and see core inflation ending the year at 2.7%, up from the prior 2.5% forecast. The median projection still calls for one rate cut in 2026, though seven of nineteen voting and non-voting participants now pencil in no cuts at all this year.
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