Markets are facing rising geopolitical tensions and policy uncertainty that are clouding the growth outlook—despite signs of underlying economic resilience. Our Quarterly Outlook explores the risks, sources of stability, and key areas to watch as we enter into the second quarter of 2026.

Main Takeaway

The U.S. economy appeared to slow in Q4, expanding at a modest 0.7%¹ annualized pace. However, this understates underlying strength, as a 43-day government shutdown reduced GDP by roughly 1.0%–1.2%. Meanwhile, Middle East tensions have renewed inflation concerns via higher energy prices. The labor market showed some improvement, adding 205,000 jobs in Q1², though growth has moderated on a year-over-year basis.

Top Risks

Geopolitical tensions in the Middle East continue to pressure the global economy, as elevated oil prices weigh on near-term growth. A prolonged conflict risks further slowing activity while reigniting inflation concerns. Meanwhile, policy uncertainty has increased after the Supreme Court struck down the Trump administration’s authority to impose unilateral tariffs. Consumer confidence also remains weak, with sentiment hovering near decade lows, underscoring a cautious outlook for both households and businesses.

Sources of Stability

Despite ongoing headwinds, the U.S. economy is still expected to grow at a 1.3% annualized rate in Q1³. Consumer spending remains resilient, particularly among higher-income households, rising 2.0% in Q4. Real-time indicators, including credit and debit card data from Bank of America, point to solid spending in February. While job growth has moderated in recent quarters, it remains positive, with unemployment holding steady at 4.3%⁴, supporting overall economic stability.

For our latest perspectives on markets and economic conditions, view our Quarterly Outlook report for Q2 2026.

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Sources:

¹U.S. Bureau of Economic Analysis. “GDP (Second Estimate), 4th Quarter and Year 2025” March 13, 2026

²U.S. Bureau of Labor Statistics, All Employees, Total Nonfarm [PAYEMS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PAYEMS, April 6, 2026.

³Atlanta Fed GDPNow estimate as of April 9, 2026

⁴U.S. Bureau of Labor Statistics. “Employment Situation Summary” April 3, 2026

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