The U.S. economy is facing no shortage of worries as it heads into 2026

By Greg Robb Progress on inflation has stalled. Labor market looks shaky. A mid-2025 downpour on Wall Street. The Federal Reserve's and Wall Street economists' forecasts for 2026 are generally quite rosy, with growth accelerating, unemployment stabilizing and inflation falling in the new year. But other, independent economic experts are much more concerned and see no shortage of potential pitfalls. They see a labor market that looks weak, against a backdrop in which progress on inflation has stalled. "The economy feels quite fragile to me," said Mark Zandi, chief economist at Moody's Analytics, in an interview with MarketWatch. A lack of hiring may spell trouble Since the summer, the good news has been that layoffs have been low. On the other hand, most companies are not adding jobs. Economists refer to this trend as a "low-hire, low-fire" labor market. Zandi and Claudia Sahm, the noted former Fed economist who is now chief economist at New Century Advisors, agree that this trend is unsustainable and that there could be a spike in unemployment. "We don't have a labor market that feels like [it's] in comfortable equilibrium," Sahm said. "You can only have the low-hire, low-fire economy over a period of time. There's a limit to how far you can push this before things start to unravel on the consumer side," Sahm said in an interview. If consumers stop spending, businesses will lay off workers. 'As long as the economy is not creating jobs and unemployment is rising, it's hard to feel good about how the economy is performing.'Mark Zandi, Moody's Analytics The U.S. economy grew by a stronger-than-expected 4.3% in the third quarter. That's the best reading in two years. But the unemployment rate is slowly rising, inching up steadily to 4.6% in November from 4% at the start of the year. "As long as the economy is not creating jobs and unemployment is rising, it's hard to feel good about how the economy is performing," Zandi said. Adam Posen, president of the Peterson Institute for International Economics, is of the view that Zandi and Sahm overly focused on weak demand for labor. He argues that the labor market underwent enormous structural change coming out of the pandemic. "A lot of labor-market adjustment was done in a very short period of time, and, as a result, there isn't much left to be done," he said. Essentially, employers collected inventories of workers that can be drawn down. Don't miss: Why there could soon be another government shutdown - and what it would mean for you This allows for there to be a period of rising unemployment without recession, he said. Inflation could heat up Posen is more worried than Sahm or Zandi about rising inflation pressures in 2026. "You are going to get a bunch of inflationary pressures," Posen said, including from the Trump tariffs, a Fed with less inflation-fighting credibility and fiscal stimulus from the Republican tax bill passed last summer. See: Americans say the economy is lousy, but their spending habits say the economy is pretty good. What's going on? Inflation shocks are going to have a bigger impact and be more persistent, he said. '[T] he shoe hasn't yet dropped on the deportation of migrant workers.'Adam Posen, Peterson Institute for International Economics Posen said his major worry for the economy next year is that "the shoe hasn't yet dropped on the deportation of migrant workers." While the White House has boasted that a lot of workers have been deported, sectors that have required migrant workers - like home healthcare, child care and food processing - still do not show increases in legal employment or a collapse in output. That suggests "the workers aren't gone yet," Posen said. If and when migrant workers do leave, there will be a shock that boosts inflation and hurts growth, and it will be "big and bad," he said. Employers in affected sectors will have to raise wages to attract new workers, and there will be a shortage of goods in the market. A second worry would materialize If Congress doesn't enact laws to lower the cost of health insurance, Posen said. That will force women to drop out of the workforce to provide needed care for loved ones. This will also boost inflation and dampen growth, he said. Artificial-intelligence investment should continue to offset some of the shocks to slower growth, but there will be nothing holding down prices, he said. "So, to me, this is an inflation scenario - not a stagflation scenario," Posen said. Opinion: Why Jerome Powell was right all along - and Trump was wrong - about interest rates, inflation and the economy -Greg Robb This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. (END) Dow Jones Newswires 12-31-25 1553ET