Shock Absorption: Three Signs the Economy Is Picking Up from Here
The Federal Reserve cut rates for the third meeting in a row yesterday. In its commentary, the committee suggested that it doesn’t see room for many more cuts in the near future and that the economy will likely hold up in 2026. We agree.
Here’s how shock absorbers have kept the economy on track, and why we see the potential for growth to be firmer than it was this year.
1. The labor market bent, but didn’t break
The labor market has absorbed the tariff shock. The unemployment rate currently stands at 4.4%, higher than the 3.5% rate in January, but close to what we think is the peak. Most of the increase is from more people coming into the labor force or finishing temporary jobs, not companies slashing headcount. Layoffs have only added a sliver to the rate so far, much less than at a similar point around previous downturns.
The Fed is trying to engineer a looser, more two-sided labor market that takes pressure off wages and inflation, not a collapse in jobs. Incomes are still moving in the right direction, with paychecks growing faster than prices, so the average worker’s purchasing power is holding steady.
2. Policy is shifting from headwind to neutral
The policy mix isn’t fighting the economy the way it was a year ago. The big adjustment to higher mortgage rates, a stronger dollar and tighter credit has largely already happened – the incremental hit is fading. Easier financial conditions should provide an additional boost. There’s also a shift on the fiscal side, with tailwinds emerging and potential court rulings that could ease fiscal disruption. Personal tax refunds should begin to lift disposable incomes and support consumer demand.
3. The investment cycle is still doing a lot of the heavy lifting
Non-residential fixed investment has been punching above its weight in driving growth. A surge in investment marks the beginning of another major capex wave, especially in areas like data centers, chip capacity, power infrastructure and networks. As companies invest in automation, software and artificial intelligence tools, even modest efficiency gains would make it easier for the economy to grow a bit faster without reigniting inflation.
Putting it all together, we expect U.S. economic growth to be stronger next year than it was this year. The labor market remains resilient, policy is shifting from headwind to neutral, and a powerful capex wave is providing a second engine for expansion.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for
J.P. Morgan Private Bank.
r.barragan@jpmorgan.com | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: “Shock absorption: 3 signs the economy is picking up from here” Federico Cuevas & Justin Biemann, Global Investment Strategists, Dec. 12, 2025
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