Raphael Olszyna-Marzys, International Economist at J. Safra Sarasin Sustainable Asset Management, examines how fresh geopolitical strains and political pressure on the Federal Reserve have left markets largely unshaken. He maintains a constructive global outlook, supported by easing fiscal policy, the AI investment boom and early signs of recovery in Europe and Asia.

Hopes that 2026 might bring respite after last year’s policy turbulences were rapidly dashed. On January 3, US special forces snatched Venezuela’s president, Nicolas Maduro, from his home. Earlier this week President Trump signalled support for Iranian protesters by threatening – though not yet ordering – 25% tariffs on countries trading with Iran and hinting at possible military action. 

The US administration is attempting to politicise the Fed 

At home, the Department of Justice has opened a criminal probe into Jay Powell, the chair of the Fed, on what are widely viewed as made-up charges, designed to pressure the Fed into easing policy more aggressively and to showcase the White House’s power over other branches of government. For the first time, Powell publicly pushed back, accusing the administration and the President of political interference and intimidation. Former Fed chairs, foreign central bankers and even two Republican Senators have rallied to his defence. In the coming weeks, the Supreme Court may rule on the legality of the ‘reciprocal’ tariffs and on the dismissal of Lisa Cook, another Fed board member. 

Financial markets ignored these developments 

Remarkably, financial markets have taken these developments in stride. The only exception is precious metals, whose prices have climbed further. For the economic outlook, the first couple of weeks of 2026 are a reminder that the administration’s activist instincts – most recently its promise to tackle the ‘affordability crisis’ with price caps – are unlikely to go away. 

Positive outlook for the global economy 

Even so, we maintain our broadly positive outlook set out in our year-ahead note published last November: fiscal policy is shifting from a headwind to a tailwind in most major economies, financial conditions remain loose and the AI build-out continues apace. 

Accordingly, we have made only modest forecast changes. For the United States, we now expect GDP growth of 2.2% in 2025 (up from 2%), 2.3% in 2026 (from 2%) and 2% in 2027 (from 1.7%), reflecting stronger-than-expected momentum in late 2025 and, for 2027, firmer trend productivity growth as AI diffuses through the economy. 

Fed to cut rates once this year to 3.5% 

Under this scenario, and with strict immigration controls in place, the labour market could tighten again, and wages accelerate as demand strengthens. The fall in the unemployment rate to 4.4% in December, despite meagre job creation, suggests the process may already be under way. Should the next few employment reports confirm this, companies – which largely absorbed last year’s tariff costs in their margins – may be more inclined to pass those costs on. In such circumstances, and despite softer energy prices, headline inflation should hover between 2.5% and 3.0% this year. This would signal to the Fed that cutting rates into stimulative territory is unwarranted. Therefore only one further rate cut is expected this year to 3.5%, our estimate of the neutral rate. More dissents on the FOMC, however, could lead to less predictable decisions and greater market volatility. The next Chair is likely to push for easier policy early in his tenure, regardless of the data, but doubts over his credibility may blunt his influence – nudging the Fed towards the ‘one person, one vote’ model used at the Bank of Japan or Bank of England. 

A cyclical recovery in euro area has started 

There are early signs, particularly in the euro area, that the capex upswing is spreading beyond AI-related sectors. And despite recent soft inflation prints, the ECB made clear at its December meeting that it sees little reason to change its stance. The window for an additional rate cut is closing fast, and we stick to our view that policy will remain unchanged through 2026. A cyclical recovery in the euro area, especially in Germany, should in turn lift growth in Switzerland, given close trade ties. Cyclical indicators, such as the KOF barometer and the SECO consumer confidence index have both risen in recent months, also a reflection of stronger credit growth and construction activity. These are not signals that call for additional monetary easing; we maintain our view that the SNB will hold rates steady this year and lift rates once in 2027. 

Bank of Japan will have to tighten policy  

One central bank that has turned more hawkish is the Bank of Japan, confronted with sticky inflation, a weak yen and additional fiscal stimulus. Prime Minister Takaishi, buoyed by strong polling, is set to call a snap election. A larger majority would allow her government to resubmit the budget for the 2026 fiscal year, with higher spending on defence, AI infrastructure and energy security. Additional measures to support households’ purchasing power are likely too. We have revised up our policy rate forecast to 1.50% by year-end (from 1.25%) and to 1.75% by end-2027 (from 1.5%), implying a mildly restrictive stance. 

Early policy easing to support the Chinese economy 

Our China growth forecast for 2026 remains at 4.5%. Towards the end of 2025, investment weakened and consumption slowed on a year-on-year basis as the consumer subsidy program clocked a full year. But the government has already delivered more policy support to revive investment and boost consumption than pledged during December’s Central Economic Work Conference. A new round of consumer subsidies was announced at the end of 2025 with green products being prioritised. On January 15, the People’s Bank of China (PBoC) also announced a 25bp rate cut on relending rates, which are part of the PBoC’s structural monetary policy tools. Consumer sentiment has picked up further and is at the highest level in many months. The contribution from net exports to GDP growth is expected to remain sizable in early 2026. While the economy is not as unbalanced as in the late 2000s, its trade surplus in percent of world GDP has hit its highest level, likely indicating losses for other global competitors. 

EMs remain resilient despite geopolitical tensions 

Emerging market (EM) economies have remained resilient. AI-related demand is expected to continue to boost tech exports from Asia, while rising metals prices should be supportive for commodity exporting EMs. Monetary easing in 2025 for most EMs should support domestic demand in 2026 even as fiscal policy may be a drag in many instances. Although most EMs are at or close to the end of their rate cutting cycles, a few such as Brazil and Turkey still have room to ease. Geopolitical noise has risen with the capture of Maduro in Venezuela and Iran’s uprising, but it has not had a negative impact on EM. 

By Raphael Olszyna-Marzys, international economist at J. Safra Sarasin Sustainable Asset Management