2 big things to watch in the economy: AI & Trump's Fed pick

Economic Outlook & GDP Growth - Trend growth in GDP for 2026 is expected to be decent, with a slight pickup from this year's slightly below-trend performance [1][2] - AI spending is estimated to be about 1.5% of GDP, contributing about a quarter of the GDP growth [6][7] - Government shutdown is expected to reduce GDP growth by 1-1.5% [30] - GDP is running at about 4.2% for the third quarter and was about 4% in the second quarter [25] Inflation & Monetary Policy - Inflation is expected to be a bit elevated in Q1, with potential Fed cuts after the next Fed chair takes position [4] - The Fed is likely to cut rates in December, then potentially pause as growth picks up [3] - The Fed may implement two more cuts after December, but further dovish policy may be difficult to push through due to differing opinions among members [4][15] - Rates are closer to what FOMC members view as neutral, making further cuts more difficult [14] Labor Market - Job growth is expected to average around 80,000 for 2026, compared to the recent average closer to 60,000-70,000 [19] - A pickup in cyclical areas of the economy like retail, finance, leisure, and manufacturing is expected to support job growth [18] - September jobs report showed payrolls rose by 119,000 a month, though the unemployment rate ticked up to 4.4% [21] AI Impact - AI is considered an important but not game-changing factor in economic growth [7] - Concerns exist about overinvestment in AI, but it doesn't appear to be in bubble territory yet [9][10] - Companies are expected to continue investing in AI to avoid being left behind [11][12] Federal Reserve Leadership - Kevin Hasset is a front runner to be the next Fed chair [1] - Even with a more dovish Fed chair, getting committee consensus on policy may be difficult, especially with elevated inflation [13][14] - Fed independence is a lingering concern, but recent voting patterns suggest members are coming together [15][16]