As organizations and investors look ahead, uncertainty remains a constant — from interest rates and inflation to technology investment and geopolitics. To help turn complexity into clarity, the CBIZ Investment Advisory Services (IAS) Investment Research Group conducted a comprehensive review of economic data, market trends, and policy signals shaping the year ahead.
The findings point to an economy that is slowing but not stalling. Interest rates are likely to stay higher for longer, inflation is moderating but persistent, and labor markets are cooling without breaking. At the same time, large-scale investment in AI and technology continues to support growth and earnings, even as households and certain sectors face tighter financial conditions.
Read on to explore our team’s key takeaways regarding the forces shaping markets and economic activity in the year ahead.
Interest Rates: A New Normal Takes Hold
Early interest rate dynamics reflect a clear divergence across the yield curve. Markets are pricing roughly two 25-basis point rate cuts by the Federal Reserve in 2026, consistent with moderating — but still positive — economic growth and inflation that remains contained rather than fully remediated.
At the same time, long-term rates remain elevated despite expected policy easing. With the last rate cut, we saw short-term rates fall, but long-term rates rise, and we expect a similar pattern going forward.
For businesses and investors, this divergence means the cost of capital will remain a key constraint, and elevated long-term rates raise the hurdle rates for corporate investment and equity valuations when projects are funded with debt.
Inflation: Moderating, But Not Fully Resolved
Inflation cooled meaningfully in 2025, with core CPI falling from 3.3% to 2.6%. Yet it remains above the Federal Reserve’s target level, and consensus forecasts suggest inflation will hover in the upper-2% range throughout 2026. Goods disinflation has largely played out, shifting the burden of price pressure to services, housing, and wages.
Looking ahead, inflation will reflect a balance between slowing demand and disinflationary productivity gains from AI, against ongoing labor constraints in certain sectors, elevated government spending, and geopolitical fragmentation. The result is likely stability, but not a full return to pre-pandemic inflation dynamics.
AI Investment Becomes a Pillar of Growth
The AI cycle has moved from experimentation to industrial-scale investment. This investment cycle has become a critical driver of economic growth, corporate earnings, and capital markets. Hyperscalers continue to pour resources into data centers, software, and infrastructure.
However, this concentration also introduces risk, as a slowdown in AI spending would remove a key source of demand with ripple effects across valuations and credit markets.
Labor Markets Cool
Labor markets are expected to continue normalizing, with unemployment hovering in the mid-4% range. Hiring is slowing, but not collapsing, pointing to a cooling without a sharp downturn.
Wage growth is projected to moderate to roughly 3–3.5%, which, when paired with inflation in the upper-2% range, suggests flat to modestly positive real income growth. Demographic shifts and immigration trends are playing a meaningful role, reducing both labor supply growth and hiring demand.
Geopolitics Shift & the K-Shaped Economy
Geopolitics is increasingly a structural constraint on growth rather than a short-term shock. Elevated tariffs, selective decoupling between the U.S. and China, and continued global conflict are reshaping supply chains and capital allocation. While these dynamics add cost and uncertainty, they are also driving investment in resilience and regionalization.
At the household level, the economy remains uneven. The restart of federal student loan payments and rising delinquencies on credit cards and auto loans are putting pressure on lower- and middle-income households. Higher-income consumers and stronger companies, by contrast, continue to benefit from wage gains, savings buffers, and asset appreciation — reinforcing a K-shaped economic pattern.
What This Means for Businesses and Investors
The 2026 outlook points to a slower, more selective environment where stability matters. AI investment, foreign capital inflows, and policy incentives for business spending provide meaningful tailwinds. At the same time, elevated rates, tighter household finances, and geopolitical uncertainty raise the bar for growth and profitability.
Go Deeper on What’s Shaping 2026
This article highlights key themes shaping the year ahead, but the complete CBIZ Investment Advisory Services 2026 Economic Outlook goes deeper — with data, charts, and analysis to help investors and organizations better understand the forces influencing growth, markets, and investment decisions.
Read the full outlook to explore the insights driving our perspective on 2026.
The information included in this outlook is provided for informational purposes only and should not be construed as investment advice.
The views expressed are those of the investment research team based on the data available when this update was written and are subject to change based on market conditions or other factors. CBIZ Investment Advisory Services disclaims any liability for any direct or incidental loss incurred by applying information supplied in this update.
Investment advisory services provided through CBIZ Investment Advisory Services, LLC, a registered investment adviser and a wholly owned subsidiary of CBIZ, Inc.
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