Expecting economy to slow in 2026, says AAF's Holtz-Eakin

Economic Outlook - Tax cuts are expected to provide a boost to growth in the new year, but inflation and labor market risks remain concerns [1] - There are tailwinds for demand from consumer tax policies and a corporate investment boom, but a disconnect between GDP and job growth is anticipated [2] - Productivity growth in the third quarter was significant, but labor input remained flat, raising questions about sustainability [3] Consumer Spending and Income - Growth in real disposable income was reported as zero, which may hinder consumer spending moving into the fourth quarter and next year [4] - A strong second half of 2026 is anticipated due to cash influx from tax refunds into households and struggling small businesses [4] Inflation Trends - Current inflation readings are closer to 3% rather than the targeted 2%, attributed to tariff and goods inflation issues [5][6] - Forecasts suggest a slower decline in inflation rates than previously expected, with potential delays in tariff impacts [7] - The direction of inflation is expected to trend lower, but concerns about real income growth and unemployment may shift focus for the Federal Reserve [8] Fiscal Policy and Economic Stability - The Federal Reserve may need to consider long-term fiscal stability due to significant budget deficits, which are currently at 6% of GDP at full employment [9] - There is a looming concern regarding bankruptcy in social security and the need for reform in entitlement programs [9] - The economic outlook for spring is predicted to be challenging, with a potential stagflation scenario emerging early in the year [11][12]