A few likelihoods
On the Federal Reserve, a baby bust, and things that stand a very good chance of happening in 2026
Three predictions that seem overwhelmingly likely to come about in 2026, given circumstances already widely known:
■ 1. Revived inflationary pressure. When Jerome Powell’s second term as chair of the Federal Reserve concludes on May 23, the President has already made it clear that he will nominate a successor who favors lower interest rates. The Senate, which must confirm the nominee, is very likely to approve whomever is named. At this time, a cut in interest rates is very likely to have inflationary consequences. The Federal Reserve chair doesn’t act alone, which is an important check on the system. But the intent to push for lower interest rates is clearly there.
■ 2. Discounts for online higher education. The United States began a very noticeable dip in births -- a “baby bust” -- around the 2008 financial panic. We are now 18 years past that baby bust, which means that the available population of conventional first-year students at colleges and universities is about to dip. Higher education was forced to broadly adopt online teaching methods due to the Covid-19 pandemic, and the technology for online delivery has had half a decade to mature since then. Many colleges trying to make up for the demographic pain of the baby bust are likely to turn to recruiting non-traditional populations to enroll online; many of them haven’t really tried in earnest up until now. Any large increase in supply at a time when demand remains flat will tend to press prices downward.
■ 3. Prices will start to reflect new risks. Many of the prices to which we have grown accustomed are based upon a post-WWII normal, assuming mainly peaceful relations among nations, predictable security agreements, and a generally favorable outlook for trade. Whether or not the United States actually goes about menacing neighbors and near-neighbors like Canada, Mexico, and Greenland, the chances are certainly higher than they used to be, and that’s going to impose both real costs and costs in the form of risk premiums. Expect many prices to rise accordingly, in some rough proportion to the amplitude of the threats.