Research @ Citi Episode 59: The U.S. Economy's Future: Soft Landing... or Hard Reality?
Dec 18, 2025
Nathan Sheets, the Global Chief Economist at Citi, shares insights on the U.S. economy's trajectory heading into 2026. He discusses a 'Goldilocks' scenario of balanced growth and low inflation, while weighing the upsides of consumer strength against risks like labor challenges and geopolitical tensions. Delving into tariffs, Nathan reveals their surprisingly muted impact on inflation. Moreover, he tackles the Fed's balancing act amid varying inflation and labor dynamics, and reflects on AI's potential for productivity gains in a K-shaped economy where prosperity isn't equally shared.
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Goldilocks Global Outlook
- Nathan Sheets expects 2026 global real GDP growth close to but slightly below trend (~3%) with global headline inflation near 2%.
- He anticipates central banks cutting rates in that environment, producing a ‘‘not too hot, not too cold’’ economy.
Balanced Upside And Downside Risks
- Upside risks include a well-positioned U.S. consumer, strong corporate sector, and potential fiscal stimulus from President Trump's bill.
- Downside risks include further labor-market softening, tariff-related demand timing, and geopolitical/political-gridlock uncertainty.
Tariff Effects Are Slower, More Muted
- Tariff-induced price effects arrived slower and have been more muted than expected, partly absorbed into firm margins.
- Small and medium-sized enterprises appear more affected than large corporates so far.