As 2025 wound down, the U.S. economy managed an uneasy balancing act: solid enough to inspire confidence, but soft enough to keep anxiety simmering just below the surface. Holiday spending rose moderately, powered by e-commerce growth, along with rising consumer debt and the risk of a spending pullback in early 2026. Hiring was positive but weak, wages nudged higher, and unemployment dipped slightly—an end-of-year snapshot that suggested resilience, but not momentum.
Then came the policy curveball.
President Trump announced he would direct Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds, arguing the move would “drive mortgage rates down, monthly payments down, and make homeownership more affordable.” On its face, the pitch is politically potent: a promise of cheaper monthly payments at a moment when homeownership remains out of reach for many.
But economists widely criticized the plan, warning it could end up doing the opposite of what it advertises—particularly in a housing market still shaped by what they describe as a severe shortage of homes.
The core concern is simple and unforgiving: stimulating demand in a market with limited supply typically raises prices.
Moody’s Chief Economist Mark Zandi and Redfin Chief Economist Daryl Fairweather were among the critics. Even if the bond-buying strategy modestly lowers mortgage rates temporarily, they argue, injecting more money into housing would likely boost demand for a constrained number of homes, pushing prices higher and erasing any savings from lower borrowing costs. In other words: the policy could reduce interest costs but inflate the asset itself—worsening long-term affordability while offering only a fleeting benefit.
That dynamic could arrive just as consumer behavior turns more brittle.
A report released by Visa found U.S. consumers increased holiday retail spending by 4.2% year over year in the seven-week period starting Nov. 1. In-store sales climbed 3%, while ecommerce spending jumped 7.8%. Brick-and-mortar still dominated, accounting for 73% of total retail payment volume. Electronics led categories with 5.8% growth, and apparel/accessories rose 5.3%. But home improvement looked sluggish: furniture and home furnishing rose just 0.8%, while building materials and garden equipment fell 1% from 2024.
Behind the spending, the funding matters, according to a recent report from the California Association of Realtors (CAR). With many consumers leaning on credit cards or buy-now/pay-later options, credit debt is expected to rise—potentially forcing a pullback in early 2026.
Meanwhile, the labor market is cooling. Nonfarm payrolls rose 50,000 in December, following a downward revised 56,000 in November. The three-month average pace of net new job creation registered -22,000 in December. For the year, 2025 was the worst year of hiring since 2020, with only 584,000 jobs created over 12 months. Unemployment dipped to 4.4%, and average hourly earnings rose 3.8% year over year.
And beyond housing, the Fed may be next.
If Trump tries to fire Federal Reserve Chair Jerome Powell, it would “almost certainly” trigger a messy courtroom fight, with unpredictable consequences for the central bank, markets and the economy, said JPMorgan Chase Chief U.S. economist Michael Feroli.
He recently offered a blunt historical warning: “The historical record suggests that political interference contributed to poor monetary policy in the late ’60s and early ’70s, with unfavorable consequences for inflation developments.”
His conclusion is the real takeaway for 2026: “Any reduction in the independence of the Fed would likely add upside risks to an inflation outlook.”
Buckle up. 2026 may be a continuing, uncomfortable ride.
