We are now at the beginning of 2026, and the economic landscape with Jerome Powell (whose term ends next May) is going through pivotal moments that truly remind us of Japan's turning points, but with a modern American touch. Here are the forecasts and possible scenarios for this year:
1️⃣ "Stagnant Soft Landing" scenario (most likely):
Paul is trying to complete his mission by achieving the "miracle": reducing inflation without a recession.
• Interest Rate: Expectations suggest the Fed may keep rates at current levels (around 4-5%) for a longer period, with a slight cut (once or twice) possible in mid-2026 if the labor market remains quiet.
• Goal: Avoid Japan's mistake of "delay"; Powell will raise and lower rates with extreme caution to prevent a massive tech and AI stock bubble from bursting.
2️⃣ "Stagflation" Scenario (The Japanese Nightmare):
This scenario is what everyone fears, where inflation remains "stubborn" (above 3%) due to tariffs or geopolitical tensions, while growth slows down.
• Outcome: Powell will find himself unable to lower interest rates to stimulate the economy because inflation remains high. This is the "trap" that Japan fell into; decision paralysis leads to years of zero growth.
3️⃣ "AI Bubble Burst" Scenario:
There is a similarity between Japan's real estate frenzy in 1989 and today's tech stock mania.
• 2026 Outlook: If AI investments fail to deliver promised returns, we may witness a sharp correction in the markets. Powell's role here will be "firefighter," injecting liquidity again, which could rescue the market but deepen the U.S. debt crisis.
🔥 What should be monitored now?:
• May 2026: The departure of Powell or the renewal of his mandate (or the appointment of his successor) will be the most important signal for the markets. Any change in the identity of the Federal Reserve chair could mean a fundamental shift in monetary policy.
• Labor Market: If unemployment starts rising above 4.5%, Powell will be forced to act immediately, even if inflation remains high.