Economic / Market Update for August 2026 with Marta Rodriguez of JP Morgan Asset Management and our advisor, Jessica Ballin

Mid-Year Policy Verdict

The US economy enters August 2026 carrying the accumulated weight of three major 2025 shocks whose consequences are no longer theoretical. The record 43-day government shutdown that ended on 12 November shifted billions in federal spending into the first quarter of 2026, artificially boosting early-year GDP figures that will normalise by mid-year. The One Big Beautiful Bill Act, signed 4 July 2025, made most 2017 tax cuts permanent, added new deductions for tips, overtime and car-loan interest, and raised the estate-tax exemption, while simultaneously trimming Medicaid, ACA subsidies and food-assistance programmes. Tariffs pushed the average effective US rate toward 15 percent after importers front-loaded shipments in late 2025; those higher costs are now embedded in supply chains.

Real GDP growth is projected at 2.2 percent for calendar 2026 according to the Congressional Budget Office, slightly above potential but well below the headier numbers some forecasters expected before the full tariff and immigration effects materialised. JP Morgan Global Research assigns a 35 percent probability of recession, citing sticky inflation, labour-market softening and sentiment shocks from trade policy. Global growth is expected around 3.3 percent, with the US once again outperforming Europe and much of the emerging world thanks to fiscal tailwinds and continued AI capital expenditure.

The human and sectoral impacts are already measurable. Low-income households face higher ACA premiums and narrower eligibility; first official data on coverage losses are due from the National Health Interview Survey in summer 2026. Expanded SNAP work requirements, though their full bite arrives in 2027, begin reshaping state programmes this year. On the labour side, the sharp drop in immigration has redefined what constitutes healthy job creation: monthly payroll gains that would have signalled recession in 2019 are now the new normal required to keep unemployment stable near 4.5 percent. Construction, hospitality and services in immigrant-heavy regions feel the demand shortfall directly.

Markets reflect the divergence. The S&P 500’s continued advance rests heavily on AI-related earnings, with analysts forecasting 13-15 percent growth above trend. Yet valuations are elevated, credit spreads have begun to widen modestly, and any disappointment in the breadth of the recovery—outside the Magnificent Seven and allied sectors—could trigger rotation or correction. The non-obvious tension is fiscal: the OBBBA adds roughly $3.4 trillion to deficits over ten years even after $1 trillion in net spending cuts, raising long-term debt-sustainability questions precisely as the November 2026 mid-term elections loom and the debt ceiling must again be addressed.

Central banks are in transition. The Federal Reserve, having eased modestly in late 2025, is expected to move cautiously in 2026 as inflation settles near 3 percent rather than the 2 percent target. Other major central banks are largely on hold or tightening slightly. This leaves limited monetary insurance against any policy-induced slowdown.