Like it or not, 2025’s wild ride likely has more legs as 2026 is shaping up to be another rollercoaster year. Headline-grabbing political drama is likely to continue, coupled with an economy that will likely show resilience in the face of it.  

Trade policy will be front and center. One of the most closely watched legal developments is the Supreme Court’s pending decision regarding the scope of Presidential authority under the International Emergency Economic Powers Act (IEEPA), particularly as it relates to President Trump’s Liberation Day tariff package. With the decision expected in the coming weeks a ruling overturning the tariffs is unlikely to stem trade uncertainty given that the President could simply turn to other tariff measures. These include expanding Section 232 and 301 tariffs applied to imports deemed to be a national security threat or against countries that employed unfair trade practices against the U.S. Or, the President could employ unused tariff policies, including temporary Section 122 or 338 tariffs which are currently not in use. In either case, the decision will not un-ring the bell (Chart 1).  

The renegotiation of the USMCA is another trade policy development to watch. While the official review doesn’t start until the 5th anniversary of the agreement in July, the U.S. has already released a list of trade concerns with Canada that will be part of negotiations. While the discussion could feature fits and starts as was the case in 2025, a renewed agreement would be a key factor in both lifting trade uncertainty in North America and opening the door for more countries to pursue deals that either fell by the wayside or did not exist at all last year.   

The Midterm elections will be the main event to watch in 2026 – the house, 33 senate seats and 36 state gubernatorial races will be decided in November and a Democratic flip of either House or Congress could give Democrats renewed political power through committee and impede the President’s agenda in 2027. Current polling suggests the Senate will likely remain in Republican hands, while the House could lean in either direction depending on numerous close races.  

The evolution of economic growth will be a critical factor in deciding the outcome. To that end, the U.S. economy has shown more resilience than forecasters would have suggested a year ago, given the upending of international trade policy. GDP growth has averaged more than 4% in the 2nd and 3rd quarters, with a robust pace of consumer and business spending to boot. The fly in the ointment is that the labor market has notably weakened over time, with stagnant job growth pushing the unemployment rate to its highest level since 2021. But with domestic demand and inflation still holding up, we think this limits the Fed to just two additional cuts this year. The coming year will likely feature an evening out of these factors with still a healthy pace of growth around trend (Chart 2), driven by more trade certainty, the deregulatory impacts of the One Big Beautiful Bill Act, and ultimately, an underlying resilience that is hard to doubt.