Send a complete outlook for Q1 2026
Currently, the latest GDP is 4.3%, greatly driven by the commercial investments from AI giants in an arms race, which means the money hasn't flowed into employees' pockets, resulting in what is traditionally understood as jobless growth. On the other hand, extremely high government spending will also directly inject into GDP, with borrowed money supporting GDP figures through mechanisms like the CHIPS Act and energy subsidies.
This is most perplexing for the Federal Reserve, as their traditional economic model, Okun's law, suggests that GDP growth inevitably leads to employment prosperity, which has failed in the face of the current AI island effect.
Looking at CPI, the current service inflation has dropped back to pre-pandemic levels, making it seem like the Federal Reserve's dual mandate has achieved half of its goal. Even if subsequent CPI data turns favorable, it is unlikely to cause significant increases; conversely, any negative CPI data could lead to declines.
The unemployment rate in Q1 is likely to rise to 4.7-4.8%. When people see the rising unemployment rate and a slight increase in prices, if they drop again, they may be puzzled. With CPI under control, a high unemployment rate should ideally increase expectations for interest rate cuts, which would be favorable for increases, so why is it still falling?
The Federal Reserve is likely to believe that although the unemployment rate appears high, there are no real layoffs; it is simply frictional unemployment due to more people looking for jobs, indicating no real economic problems.
Seeing a strong GDP + moderate CPI + a high unemployment rate without real layoffs, the Federal Reserve might use this as a basis to maintain the interest rate "Higher for Longer," shifting their stance from previously dovish to neutral or slightly hawkish.
If this scenario occurs, due to the failure of interest rate cut expectations, the current high position of the U.S. stock market is likely to experience a leveraged drop, while in the crypto market dominated by Bitcoin, even if it doesn't rise, it will certainly follow the fall.
Therefore, regarding the news for Q1, I believe that bad news = bad news is highly probable. However, only if extremely bad news emerges will it equate to good news.
Powell's term is coming to an end, and it is likely that all actions will become more conservative, preferring to hold steady rather than adopt aggressive measures, compounded by the lagging effects of the Federal Reserve's data dependence.
Thus, my overall expectation for Q1 is a turbulent decline, not resembling a historic crash, and there is no need for excessive concern; it is merely a continuation of a poor market.
