The US economy faces an institutional test

The IMF, OECD, Deutsche Bank and Commerzbank expect only moderate growth in the US economy in 2026. Optimists might claim: where there is no business, there is no price increase. In fact, the consumer price index (CPI) in November was only 2.7% higher than the previous year. However, caution is advised. Rather than an economic normalization, a phase of increasing political and economic fragility is emerging in the USA - including institutional risks that cannot be priced in economically.

Even everyday prices tell a more nuanced story. European travelers were confronted with an average Big Mac price of USD 6.01 (+5.63 %) in the summer. For US households, on the other hand, the moderate rise in CPI could seem almost reassuring. But this hope is deceptive. Anyone who wants to determine the volume of a Swiss cheese knows the problem: there are holes under the rind - as in the current CPI data after the 43-day shutdown. Black Friday and Christmas discounts are putting additional pressure on prices.

The labor market is also sending mixed signals. The equally spotty employment data points to a slowdown: less job creation, more involuntary part-time work and signs of a slowdown in hiring momentum. The Federal Reserve's (Fed) recent 25 basis point rate cut was aimed at cushioning this trend.

Regardless of new luxury club items such as the Trump Gold Card, the situation is being exacerbated by restrictive immigration policies in the low and high-skilled segment. In the US, 19% of STEM professionals and 43% of PhDs have an immigrant background. Despite proven spillover effects, skilled immigration is slowed down by escalating costs for H-1B visas - a situation that was recently challenged by 20 states.

According to Abby Cohen, economist at Columbia University and Wall Street rock star, large companies in particular are hiring less, while small and medium-sized enterprises (SMEs) are downsizing. This development can hardly be viewed in isolation from the erratic customs policy. Multinational corporations can adapt supply chains more flexibly; SMEs, on the other hand, bear disproportionately high adjustment costs. These ultimately affect smaller and medium-sized households through rising prices and reduced job security. The result is a scissor movement on capital and consumer markets, which increases social tensions and promotes political polarization.

Despite the uncertainty of scenario-based analyses, key risks can be structured along four policy areas:

- Fiscal policy: the "One Big Beautiful Bill" is likely to further increase the deficit and the government debt ratio (currently 125%) and further narrow the fiscal space due to repayment obligations of rising bond yields. The use of funds is likely to remain largely unclear, with the Project 2025 agenda suggesting that priority will be given to tax cuts and specific deregulation rather than public investments such as research & development or infrastructure. This is likely to dampen any rapid growth impetus.

- Monetary policy: Persistent uncertainty and inflation risks limit the Fed's scope for aggressive interest rate cuts. At least until Fed Chair Jerome Powell is replaced in May 2026. The majority in the Open Market Committee is by no means a foregone conclusion. Nevertheless, it is to be expected that increasing political influence will weaken monetary policy independence - with the prospect of more frequent interest rate cuts and possible bond buybacks on a larger scale.

- Regulatory policy: Relaxation of capital requirements in the US banking sector is expected, which will increase the risk of competitive distortions for European banks due to asymmetric regulation. The debate on the recognition of digital assets as collateral, in particular stablecoins as a bridge between crypto and financial markets, is also likely to gain momentum. The problem is not so much the stablecoin as the connected markets: volatile cryptocurrencies correlate strongly with US tech stocks (Magnificent 7), which could lead to procyclical margin calls and simultaneous liquidations in times of stress. Even if the hardware demand for GPUs is justified, the bet is on: if an AI bubble bursts, the bang will also resound on crypto markets.

- Trade policy: Tariffs are likely to continue to weigh on the global economy. The EU actually had a surplus of USD 235.9 billion in goods trade with the US in 2024, while the US benefited from trade in services (USD +89 billion). However, as the latter is growing significantly faster according to the WTO (+8 percentage points), the narrative of the US trade deficit primarily serves to legitimize an interventionist policy style that reduces the complexity of global trade in favour of its own ability to act. Once again, it is SMEs, lower-income households and export-oriented industries that suffer.

Politically injected interest rate cuts increase liquidity in the short term, but increase valuation uncertainty on equity and private equity markets. Unclear exit multiples are already slowing down investments and transactions in 2025, as the increasing use of net asset value loans suggests - an indication of rising valuation pressure in illiquid markets.

Profit prospects along the primary AI value chain are likely to remain stable for the time being thanks to voluminous carousel transactions. However, without broad, productivity-generating demand from the SME sector, economic income effects will fizzle out. SMEs act as a central target domestic market for AI applications simply due to their number of employees. Financing bottlenecks there not only depress investment quotas. According to the OECD, SMEs repeatedly cite the shortage of skilled workers as one of the biggest obstacles to AI adaptation. Cyclical job cuts and restrictive skilled worker migration are thus jeopardizing key functions for technology adoption.

Whether these problems are addressed by the political attention economy is questionable; more likely is the repeated recourse to the trade balance narrative. The circular argument: Import costs of further tariffs would create price pressure in the short term - but in the medium term would curb consumption and investment and dampen growth along with inflation.

As these opposing effects make consistent monetary policy reactions more difficult, the pressure on the central bank's direction is growing. Historical experience shows that politically dependent central banks have rarely provided stability, but have often acted in periods of high inflation. A politicization of the Fed is likely to increase risk premiums on government bonds and thus not only exacerbate the danger of stagflation, but in particular create a risk that cannot be priced in: the path-dependent erosion of trust in a central institution of the global economy. Economies based on rules and institutions must be prepared for this.