Council of Councils
Think Global Health
Panelists discuss the state of the U.S. economy and consumer sentiment, the impact of innovation in advanced technologies on markets, and the global economic effects of geopolitical uncertainty.
PATTERSON: Thank you very much. And thank you everyone for joining us today.
I’m absolutely thrilled to have three amazing economists here joining me to discuss the outlook for the year ahead: Fabien Curto Millet, the chief economist at Google; Phil Mackintosh, chief economist and a senior vice president at Nasdaq; and certainly last but not least, Michelle Meyer, the chief economist at Mastercard Economics Institute. So, as you just heard, we’re going to spend the first thirty minutes, the four of us, having a conversation about the outlook.
I should mention I’m Rebecca Patterson. I’m a senior fellow here at the Council on Foreign Relations. And I’ve spent the bulk of my now nearly thirty-year career studying the intersection of financial markets, economics, policy, and geopolitics. We’re going to talk for about a half hour, and then we’re going to open it up for your questions. And, as you heard, you can submit those verbally or in the chat by writing. And we’ll try to take as many of those as we can. Whatever is on your mind. And just finally, as a reminder, we are on the record today.
So let’s jump right into it. I personally have found it interesting that just in the last several weeks we’ve seen, as expectations for the U.S. economy—and I’m going to be a little U.S.-centric here, because the U.S., for now, at least, is still the biggest economy in the world and has a dominant role driving the global economy. So with the U.S., we’ve seen economists’ expectations continue to tick higher. In December, the Bloomberg consensus was about 2 percent GDP growth for this year. Now it’s up to 2.3 percent GDP growth this year. I’m curious, from each of you—we’re just going to start at a high level here and then we’ll get into the weeds. But, at a high level, do you expect 2026 to be basically a repeat of 2025? Where we have resilient growth, maybe some decoupling with that growth with the labor market, a big AI and consumer factor driving it? Or is something different, in your mind, this year? And if there is something different, love to hear what it is. Michelle, let’s start with you. Again, let’s start high level and then we’ll drill down.
MEYER: Sure. Of course. Thank you, Rebecca. And it’s a pleasure to be here and to spend some time talking to you all.
It’s interesting in how you kicked off the conversation around the upper revisions, because they have been quite stark when you think about how forecasts have shifted so rapidly. And I think the big reason for that forecast change was actually what we experienced at the end of 2025. It was the handoff from a strong end of ’25 more so driving the forecast change in 2026 than it was around a considerable change in expectations for what will evolve in 2026. And a lot of that came from, frankly, what we witnessed firsthand at the institute is very strong consumer spending at the end of the year. It was a robust holiday shopping season. It was a persistent holiday shopping season. And it started early, but still managed to end on a powerful note.
And I think that speaks to the fact that the consumer has continued to be engaged. You have the headlines that are scary. You have a lot of risks. But consumers have maintained their purchasing power. And they have, if anything, gained more choice and more flexibility in a world where technology is moving so quickly, particularly when it comes to AI. So I think that was a critical factor in terms of revising up 2026 forecast is simply what we learned at the end of ’25, which was in this economy that was continuing to move forward, and continuing to see that powerful spend.
When you think about some of the drivers and the potential similarities of ’25 I think, you know, 2025—and Fabien will talk much more about this—but 2025 was certainly a year where we had a lot of dollars poured into the economy to invest in AI, to invest in the digitalization, to invest in technology. I think 2026 can perhaps be more a story of how we adapt, how we absorb that, how we try to actually take that technology, take those investments, and put it into the economy. And there’ll be a lot of learnings along the way in terms of how businesses embrace that, how consumers embrace that, and how the labor market evolves.
And then I think in terms of the headlines in geopolitics, there was—I mean, when we were sitting here this time last year we were facing what felt like an impossible situation from forecasters. I think today we have learned more. We have learned how uncertainty shocks impact or don’t impact parts of the economy. So while uncertainty will remain high, while these headlines are not going away, I think that we’ve kind of found a new—a little bit of a new baseline in terms of how to evolve in a world where they is still going to be heightened uncertainty.
PATTERSON: Fabien, Michelle mentioned AI and tech. And I think that’s probably a perfect segue to you, my friend. And I’m going to come back to you on AI specifically because it is the elephant in the room. But first, just high-level overview of the U.S. economy. What’s your perspective as we’re looking at the year ahead?
CURTO MILLET: So you both rightly called out, Rebecca and Michelle, the upward revisions in sort of the forecast out there. It’s also nice to sort of open the bonnet and sort of look at the distribution underneath. And you’ve got some notable forecasters who are way ahead of consensus. So Goldman is at 2.9 percent at the moment for the year. And some people go higher. I think I saw Nomura at 3.1 (percent). So definitely you’ve seen that trend, and people are quite bullish.
From where I stand, definitely sort of technology is going to remain a tailwind for us. So, you know, to take the big picture, we are living through the most exciting technological shift that I certainly have observed in my professional career as an economist. So AI is a sort of multiyear endeavor as a transformation. You look at serious scenarios, from the OECD to Goldman Sachs, and essentially the potential there is 10 percent uplift in U.S. GDP over a period of ten years-plus. The potential is not a guarantee, of course. If we sit on our hands it does not translate. But it just shows how tantalizing, you know, the price is.
And in terms of immediately for next year how will this manifest, so there’s the AI CAPEX story that we can come back to that was a big feature of 2025. And there’s also what Michelle called out, which is more and more green shoots of productivity uplifts as the technology gets successfully implemented through the economy. So I’d be very excited in tracking all of that.
Other things that I’ll be sort of watching closely. Consumer spending. So Michelle has called that out as being robust. Curious to see where that goes next year because, of course, about 68 percent of GDP right there is consumer spending. You know, we’ve had a lot of talk about a K-shaped economy. How will the distribution of spending evolve? And, of course, behind all of this, you still have stock market wealth and you have tech. So many, many roads lead to tech.
And finally, Rebecca, you called out the labor market, where we had that low hire, low fire feature. Bit more of a melancholy note in the economy these last few years. Curious how that evolves as well.
PATTERSON: Thank you. And, Phil, I feel like what Michelle and Fabien just said, where they intersect is your world. You know, at the Nasdaq you’re looking at the whole economy, of course, but obviously you have a great seat, a perch if you will, to understand how the equity market, how banking, IPOs, M&A, how all that feeds into this. And, again, we’re going to go a little more in the weeds in a minute, but let’s start first with what is your overview when you look at 2026? And anything you disagree with, with Fabien or Michelle, or you’d want to highlight?
MACKINTOSH: I mean, it’s kind of interesting. It feels like this year all the economists are actually coalescing around consensus. No one’s calling for recession. And no one’s really calling for an inflation spike that’s going to require rates to go back up dramatically either. So largely I agree with guys on the call. What’s interesting is I think we will get slow but positive growth. Which is just like last year. But I think the reasons why are different.
So in the past couple of years the real surprise has been that consumer. As Michelle said, they just kept spending and they kept spending much more than the inflation was actually accounting for. And part of that was because they had real wages growth. Now that we started to see the jobs situation kind of more normal, with one job for every one person looking, wages are slowing, companies are mentioning that to me and that’s sort of helping them manage their profit and loss and their margins. But I think that’s going to, to Fabien’s point, play out in the K-shaped economy, where you’ve got wealthy people with an income effect and sort of—you know, their houses are worth more, their shares are worth more. Low-income people are starting to see their wages growing more slowly. So I think that’s kind of turning into a bit of a headwind for the economy.
But then the tailwind, I think AI has been a massive tailwind for the stock market for the last couple of years. I think in the last six months we’ve started to see it’s actually a tailwind for the economy as well. And when you look at the GDP growth last year, it was half consumer, half AI spend. And that’s basically it. So I think we’re starting to see AI spend coming through into the economy as a tailwind. And the other tailwind that I see is the Big Beautiful Bill. We’re going to get tax cuts. I mean, it’s an investment stimulus for companies as well. So kind of mixture, like, of headwinds and tailwinds, which I guess at the end gives us a positive result, but not necessarily a superheated economy.
PATTERSON: Well, thank you for that. And while I get the narrative and it resonates, at the same time—and I’m sure we all would agree with this—it always makes you a little bit anxious when everyone agrees. When the consensus gets so far on one side of the boat it’s worth peering over the other side of the boat just to make sure there’s not a large shark or something equivalent there. Let’s go into each of these pieces because I think all of these are going to be so critical for the economy this year—the technology, the consumer, and, frankly, the financial markets, and how they’re all intersecting with each other.
And, Fabien, I want to start with you and keep digging in a little bit on tech. So I think around the end of last year we’ve started in the financial market seeing a little bit more dispersion, people taking a bit of profit off some of the tech companies, and maybe because of this bullish consensus moving into other types of companies, stocks, looking for that cyclical tailwind to help, I think, at the margin. But there’s also some anxiety. Will we see that productivity boom? Will we see revenue generation from Ai quickly enough to help mitigate some of the fears about financing? So I’d love for you to share your perspective on, you know, the timing of the AI productivity. I know it’s an impossible question. And also maybe if you could a little bit the labor markets. I mean, the estimates for how much and how quickly this will affect the labor market are as diverse as the productivity hopes. So how do you see it playing out?
CURTO MILLET: Thank you, Rebecca. Lots of questions there.
PATTERSON: I know. I know.
CURTO MILLET: Gosh. Let me try to unpack impact them as concisely as I can. So, as I mentioned, the AI transformation is a multiyear narrative arc. So it’s a powerful rewiring of the economy. So we’re in this for a while. But let’s sort of focus on the short term, AI CAPEX. So 2025—and Phil alluded to this already—so we had estimates that—you know, from Barclays—that half of GDP growth for the first half of a year was essentially AI CAPEX related. The Federal Reserve Bank of St. Louis looked at the first three quarters, I think this was just published this month, and found 40 percent was AI CAPEX related and adjacent. So in essence, very, very material estimates differ depending on how you adjust for imports, but we’re at that level of materiality. And looking forward this year, I saw Bridgewater Associates again forecasting that AI CAPEX will be half of GDP growth.
So it’s a big deal. That’s in terms of just the investment. But then you’ve got how it’s flourishing across the economy. And we get to your question about productivity. So productivity takes time to unlock, because you need to move from point solutions to system solutions. We know that AI is transformative. If you look at the rigorous microeconomic studies in the literature you’ve got uplift on average of 24 percent in terms of productivity. And if you survey anecdotes of firms that are implementing—so, Goldman came to an average of 32 percent. So when it works, it works really well. But then adoption does take time, as I said.
The Census Bureau, in terms of its latest reads, estimates that 17.7 percent of firms in the U.S. have adopted AI. So there’s a long way to go. And the other thing to bear in mind is that it’s very uneven adoption. So my CEO Sundar Pichai, said last year that we’re going to get AJI, artificial jagged intelligence, before we get AGI, artificial general intelligence. And, yes, if you look again at Census figures, the information sector is at 35 percent adoption. Construction is at 10 percent adoption. So you’ve got that unevenness across the economy. It’s going to be very interesting to see how it plays out.
But then, turning to the labor market—which was also in your question—what is happening there? So in essence, lots of debates as to how jobs are going to be impacted. The right framework, generally speaking, here is jobs gained, jobs lost, jobs changed, you need to think about all three categories. And the lessons from history are broadly reassuring. I mean, technology is routinely a net creator of jobs. My excellent colleague James Manyika, when he was at the McKinsey Global Institute, he looked at—in detail at the personal computing transformation and found that it destroyed three and a half million jobs—typewriter manufacturing, you know, clerical jobs—but it created over nineteen million jobs in tasks like computer manufacturing, obviously, but also analyst positions. So you’ve got that sort of dynamic going. So the equilibrium to equilibrium effect is good. The transition is where you need to pay a lot of attention to make sure that people have the right skills to catch the upside. And so there’s a big, big discussion there.
But so far not a lot of evidence of AI impacting jobs. Whether in the labor market as a whole—there’s a great Yale budget lab study from October last year that looked at that writ large—or even in pockets. People worry a lot about early career workers. My great colleague, Zanna Iscenko, and I put out a paper—self-advertorial here—a couple of weeks ago, via the Economic Innovation Group, where we looked at the early career worker story in particular, and found that that was basically macro driven as opposed to AI driven. So that’s the story to date, to catch us up.
In the future, what will happen? Well, you know, reassurance in the past does not preclude vigilance in the future. So we need to be careful here. But in essence, I expect upside from new creation of work. And the faster it comes, the better. I’ll end with one stat. David Autor, the voice of the American worker, MIT professor, and actually a technology and society fellow at Google now. So he’s—one of the best stats in his work is that 60 percent of employment in the U.S. economy today is in roles that did not exist eighty years ago. So that’s how the economy changes. And that’s the dynamism that we need to favor so that things are OK. So I hope I answered all of the various things in your question, Rebecca. Happy to deep dive further later.
PATTERSON: Thank you. No, that was perfect. Thank you, Fabien.
And, Michelle, so we’re looking at a glass half-full from Fabien, although acknowledging that there’s still uncertainty out there. I want to take a glass half-empty for a minute. If we see AI hit a constraint this year—it could be energy supply, it could be access to needed materials other than energy, it could be a DeepSeek moment, a Chinese LLM that surprises people and just hurts the stock market, and so you see that wealth effect hurting the consumer. If you don’t have that tech-led push can the consumer hold up? Can we continue to see that 68 percent of the economy holding up so much of the growth, if we don’t have that tech piece of the puzzle?
MEYER: Well, I think you have to consider the transmission from tech, from AI, into the consumer. So, yes, one of the paths is through the wealth effect, through the stock market. So the extent to which there is a turn in terms of the AI-driven wealth gains and stock market-led rally, there will be a shock to confidence. Consumers will see some of their wealth be reduced. Obviously the wealth effect, as we all know, happens with longer lags. It’s not immediate. But just from a perception, you could start to see consumers become a little bit more cautious, perhaps, if it proves to be persistent and they believe that it’s going to be, again, a more significant and lasting issue. So, yes, that’s something to watch. We always think about these linkages, in terms of what the market’s saying versus what the economy is saying, and how they will reinforce one another.
But in terms of the technology, as Fabien mentioned, it is transformational. And it’s not going to go away overnight. And, if anything, it is clearly going to continue to move forward. And consumers are feeling that. They’re feeling that in terms of their ability to access information more quickly. They’re feeling an ability to shop more quickly, something that we spend a lot of time thinking about in terms of agentic commerce. They’re seeing it in the sense of, you know, having just in general more choice, more information. And all of that tends to be somewhat disinflationary, which is helpful for the stability of the economy and the path forward for technology. So I think consumers in general are, at the moment, benefiting from the implementation, adoption of AI. And I think it’s happening at an increasing rate across the globe.
So, yes, obviously you have to pay attention to the rhetoric around it. You have to pay attention to markets in general, as you would with any type of market move that can matter for consumers. But I don’t know that the market moves will necessarily stop the transformation that’s happening from AI. The stats—I just jotted down a bunch them from Fabien—they’re meaningful. They’re amazing. And they’re long term.
PATTERSON: Yeah. I mean, I am a party of one here so I’m not a good sample, but it I use LLMs every single day as a research tool. And they save me hours and hours a day. This last weekend in the snowstorm here in New York City I decided to install Claude Code and created my first website ever in my life in about ten minutes, which—it’s not very good, but the fact that I could even do it is kind of extraordinary. And I just keep wondering, as more and more people with all the different companies products start adopting them, how our lives are going to change. It reminds me of my first PalmPilot.
Phil, I want to turn to you. And, you know, just as we have a pretty bullish consensus on the U.S. economy this year, there’s also a bullish consensus on the equity market. And we know they’re not the same thing, but they definitely influence each other. You know, if people are hopeful on growth they might buy more small cap stocks, for example. Or if people are bullish on equities, companies see their equity price go up, they might have more confidence to hire more people or invest more. So I would love to get your thought on, you know, the pushes and pulls on the markets this year, in terms of how you think about them with your economic forecasts, how you net them out.
You know, on one hand we see a pretty radically, surprising interventionist, Republican president, who is going into different companies, threatening things, buying shares, changing how much buybacks a company could do. We haven’t—I don’t think anyone had that on their bingo card. At the same time, we also have a backdrop that’s, you know, deregulation, opening up that window for M&A and IPOs. Again, how do you net all those influences? And how does it affect your economic view?
MACKINTOSH: Yeah. I mean, to be fair, the last three years has been all about the Nasdaq 100 index, and just U.S. large cap companies generally. They’ve completely thrashed every other kind of equity market. But in the last six months that is starting to change. And I think Fabien might have mentioned that, like, the valuations of those mag seven companies have started to sort of stall a little bit at the levels—not falling, but stalling at the levels they got to. And you’re starting to see a broadening out. Last year, Europe and Asian equities actually did even better than the Nasdaq 100, which I think a lot of people missed. So we’re starting to see a broadening of earnings growth and a broadening of performance across equities completely, which I think just speaks to an investor appetite for stocks kind of coming back as well.
We’ve seen that in another area, which is in the IPO market. So we kind of struggled out of COVID in the IPO market. Last year was actually the second-best year for what I call the IPO pop. So that day-one return of the companies that come to public markets was better than it had been in any time since 2014 at least, except for that COVID year. So I think of that as sort of an investor appetite metric that’s really interesting. And obviously in 2026 there’s a lot of press about some really big private companies that might IPO, some centicorns, as people talked about. In terms of M&A, we’ve seen a little bit of an uptick in M&A. Partly that’s because of the pro-merger policies, I think, of the administration. Partly it’s lower rates. But actually it’s a lot of AI deals and it’s actually quite a lot of private equity buyouts. So it hasn’t been your typical M&A cycle across the whole economy yet. But that’s sort of helping—it always ends up helping when the M&A cycle picks up as well.
The third part of your question, like, the policy shifts and all of the sort of, I guess, spanners that got thrown in the works last year, I think what’s interesting there, from my job talking to issuers and the companies that are listed on Nasdaq, really the most disruptive thing this year was tariffs. A lot of companies saw the news in April and the market sell off in April, and kind of panicked that maybe they wouldn’t be able to run their businesses anymore with tariffs as big as, you know, 15, 20, 25 percent. As the deals started to come through and as people really started to analyze their supply chains, though, we saw in the economic data tariffs didn’t matter anywhere near as much as people worried about. The stock markets recovered.
And when I go and talk to customers, a lot of the time customers have realized, you know what? The only thing that gets tariffed is imported goods. So if I’m services company, I don’t really care at all. If I’m a mostly domestic producer of goods, it’s actually probably a good thing because it helps me against somebody who’s an importer. And so it’s not universal that everybody actually has been badly impacted by tariffs at all. And when I talk to companies, a lot of them say they’re looking at supply chains and trying to work out where to resource goods more cheaply, but when you look at the import data it’s really not changing that much at all. So it doesn’t look like companies have massively restructured their supply chains. There’s no countries—maybe Germany and Canada, which have kind of expensive labor on the fringe—that have started to see their exports fall to America.
But really, all of those tariffs have been much more easy to digest than people thought. The one thing that does seem to come up when I’m talking to particularly smaller companies is tariffs have introduced a lot of complexity and a lot of uncertainty. And so a lot of them are kind of struggling to work out, like, how to plan through what’s happening now, what might happen in the next six months. And if you look at the jobs data, and you break it down by company size, pretty much as soon as the tariffs in April were announced you saw small companies net losing employees, even though the larger companies were net still hiring. So there may be a little bit of a dislocation where smaller companies have been particularly affected by things like tariffs, but actually the larger economy is much less affected than I think we all thought we would be go, back in April.
PATTERSON: Yeah, I’ve seen similar data on the smaller companies. And, you know, they’re both—they overall—I’m generalizing, but they’re more exposed to tariffs than large companies. They also generally are more exposed to foreign-born labor. So they’ve gotten hit a couple ways. And have fewer resources to manage the complexity, which you mentioned. So that will definitely be an interesting one to watch this year when we have the Supreme Court decision on the reciprocal IEEPA tariffs. How hard is it to get refunds? What replaces them? So tariffs might not have been as bad as feared, but I don’t think the tariff uncertainty and question marks are gone yet. But we’ll cross our fingers that this year is an upside surprise on them, as it was last year.
I want to switch gears now. We have a Federal Reserve meeting kicking off today. An announcement coming tomorrow. I think the broad consensus is that we’re not going to see any change in policy interest rates tomorrow. I think the Fed signaled that pretty clearly. But we still will have comments and a statement to parse. And I think there is a lot of attention on the Fed right now, if not for this meeting to both what will they do this year overall. Will we get—right now it’s not quite two twenty-five basis point cuts priced in, but almost two twenty-five basis point cuts priced in. Do we get the two cuts? Do they worry more about labor or inflation? Inflation is still quite a bit higher than they’d like.
And then, I guess the second question—so you guys can pick and choose what you want to answer here—is Fed independence. We have a lot of possible risks around that this year. And how worried are you, or not, and why? So I’m going to play jump-ball on this. Actually, you know what? Fabien, I’m going to start with you, because I keep starting with Michelle. So let’s start with you on this one, and then we’ll go to Phil, and then Michelle on the Fed.
CURTO MILLET: Super. So I don’t, as a rule, commentate on Fed policy. But they will zoom in on a sort of narrow aspect that’s interesting and to watch. Last year we had Austan Goolsbee of the Chicago Fed give a speech near here, at Stanford, where he remarked on something. He called it “weird and lovely” when it comes to productivity growth. Which is that when you look at productivity growth in the last couple of years, we are above the pre-COVID trend. And so, you see I’m going to bring this back to AI. Because the question, is this AI related? And so he looked at the productivity surge, industry by industry, and found that seven out of the top eight, you know, industries was at such a surge so were either AI or tech intensive. So seven to eight out of ten.
And this is confirmed now. There was a paper by the Federal Reserve Bank of St. Louis in back in November, where they saw that industries with higher AI adoption are also showing higher productivity growth. Why am I mentioning this? Because if this is confirmed and enshrined, as I think it will be, it’s wonderful news for the economy and for the Fed. Because a central banker’s dream is growth without inflation. And so this is changing the engine of the economy, not pumping the gas to get more speed. And so let’s see this trend closely, but, you know, definitely the Fed is hoping that some of these supply constraints don’t bite as hard as they have in the past thanks to technology.
PATTERSON: And I think that’s a great thing to watch for after tomorrow’s meeting, if we get any commentary on that.
Yeah, Phil, anything you want to add on this?
MACKINTOSH: I think if I was a Fed governor and I got to vote, I would be voting for at least two more cuts. And there’s probably three reasons why. One is, the small companies, again, have very high interest costs right now. If you look historically, going back two, three decades, they’re close to 50 percent of their EBIT is being paid in interest expense. It’s just starting to come down. But basically, a lot of small companies’ margins and profitability has been really hurt by these higher interest rates. So I think lower interest rates can be good for small companies, which is going to be good for employment.
I think demographics is something that people don’t talk enough about. We are barely growing our population now. So compared to the ’70s, when we had three-odd kids per family and a lot of household formation and extensions and extra houses and, you know, people buying more white goods, there’s just not going to be that kind of demand going forward with an aging population. So look back at Japan in the ’90s. And I don’t want to say we’re exactly that, but that’s kind of the demographics that everybody in the developed world is in right now. So that’s not going to keep the economy hot on its own.
And I think in terms of the inflation, I talked a little bit about how wages pressures have come down, which is good for companies. But I just don’t see an upside risk to inflation. And maybe even Fabien’s point is, you know, if we can have productivity we’re not going to have inflationary pressures, even if we have reasonably hot GDP growth. So personally I think there’s a good reason to get rates quite a lot lower. I would probably say three would be my vote, if I was a Fed governor.
PATTERSON: All right. That’s great. I appreciate the thoughts on that. And, Michelle, anything you want to add briefly? I want to try to get two more quick questions in before we go to Q&A, but if you have a thought on the Fed we’d love to hear it.
MEYER: I mean, I think it all is around where you assume that steady state equilibrium is. And if it is the case that we have productivity, we have low potential growth, we have disinflationary structural forces, then lowering interest rates can be quite credible and makes sense. So that’s what I’ll be listening to Fed Chair Powell tomorrow, is trying to get a better sense of where they think that star is, where they think they’re shooting towards, and how they’ll be able to determine whether or not they feel like they found it and have that optimal level of interest rates. Because they’re not cutting necessarily to provide easier monetary policy. They’re cutting to get to that optimal rate.
PATTERSON: OK. Great. While we’re still on the Fed, I know one thing this administration has talked quite a lot about is having some sort of new Fed-Treasury accord. Secretary Bessent from the Treasury Department wants to see some reform of the Fed. And we know that Chairman Powell is going to step down as chair. We don’t know if he’ll leave the Fed completely in May. And we might get a new nominee to succeed him as early as this week. President Trump has suggested it’s coming shortly.
I’m curious. You know, all of you are talking to a lot of corporations around the United States and even overseas. Borrowing costs. You know, Bessent’s North Star, if you will, is getting that ten-year yield lower. And we know that that’s a critically important yield for the housing market, because it anchors mortgage rates, for corporate borrowing, and certainly, as we try to finance our large and growing budget deficits here in the U.S. What are you hearing from your clients on borrowing costs? And how do you see that flowing through to the economy, or not? Am I making a mountain out of a molehill? Anyone who’d like to jump on that.
MACKINTOSH: Let me start, because I get a lot of questions from corporates because they don’t understand how the federal government can be so blasé, I guess you’d say, about the level of deficit they’re running. And I think that’s because corporates have to borrow money. And they realize that their leverage is really important and they can’t just increase taxes to cover it. But the corporates have been kind of wrong for a long time, right? I mean, you look at a lot of economies around the world—Japan stands out, but even some of the European economies—you can keep borrowing as long as you can control your interest rates and you can grow your GDP. So as a country, like, being able to afford debt and deficits is different than for companies.
PATTERSON: Anyone else want to jump on that? Otherwise real quickly I’d love to turn to the global economy. So we’ve—again, we’ve been quite U.S.-centric, I think for good reason, so far today. But I don’t want to ignore the rest of the world. Again, the global GDP picture is looking decent this year as well. We’re expecting some stimulus from China. We are seeing more infrastructure and defense spending coming out of Europe. Most of the other emerging markets are looking decent, in some cases because of AI exports. Any concerns you have? Or do you think it’s pretty smooth sailing when we look at the rest of the world in 2026?
MEYER: Well, I can jump in. I mean, I think it’d be nice to say it’s all smooth sailing, but obviously we have to stay really vigilant here as we think about all these different dynamics. So, yes, I think the baseline is, as we talked about, somewhat comparable to last year in that we will continue to see expansion, we will continue to see resilience. And that’s what we’ve seen for the past few years. But, obviously, we have to be on watch. I think you alluded to one that’s important, which is fiscal tailwinds. You are seeing that certainly when you think about China and supporting the domestic economy, being really mindful about bringing a new type of consumption, a new type of domestic growth. Germany expanding its fiscal spending, what that means for the longer term, but certainly even what it means for this year.
And then around technology and the race to adapt and invest in technology, it’s not happening at an even pace, as I’m sure Fabien will talk about more. And that’s going to also see some real differentials across the globe. Trade will be another one. How do we consider—you know, we’re just getting started—we just got started last year in terms of the trade realignment. That will continue into this year, and it will continue thereafter. So how does that show up in terms of relative growth, where some of the acceleration or deceleration might be based off of how supply chains move?
PATTERSON: Fabien, from a technology perspective, from your seat are there any countries you’re trying to keep a closer eye on than others in terms of technology outside the United States?
CURTO MILLET: I mean, obviously all eyes outside the United States are on China, with the sort of AI race that’s, you know, in full swing. Demis Hassabis , our excellent CEO of Google DeepMind—so recently, I think it was with CNBC, it was a podcast, where he said that China is actually closer to the U.S. frontier than is generally anticipated, maybe just a few months behind. But being closer to the frontier you have to take that with a pinch of salt, because imitation is easier than, you know, pushing the frontier forward. And that we have not yet seen evidence from China of that ability to push the frontier forward. Nevertheless, closer on the heels than many anticipated. So, you know, DeepSeek, everybody paid attention to that.
But if you zoom out from tech, I mean, China is a powerhouse, right? You look at—the World Intellectual Property Organization has this great index of a global innovation index, which looks at innovation in the round. So not just outputs, patents, et cetera, but also inputs into the innovation process. China was forty-third in 2010. It’s now overtaken Germany, and it’s now in position ten. And just for context, the U.S. is in position three. So, I mean, they’ve got a rocket booster there. So definitely U.S. policy will need to keep, you know, China, because the rearview mirror shows them as large and growing.
PATTERSON: Thank you.
I’m going to pause us here and ask my CFR colleague to just remind our viewers, listeners how to ask questions, and see if we have any questions in the queue at this point. Otherwise, I have lots more on my mind.
OPERATOR: (Gives queuing instructions.)
We will take the first question from Peter Trooboff.
PATTERSON: Hi, Peter. I think your mute might be on.
OPERATOR: Mr. Trooboff, please accept the unmute now prompt. Looks like we’re having technical difficulty with that line. We’ll take the next question as a written question: How do you see the GENIUS Act affecting the payment space? What is your outlook for growth and innovation in crypto and stablecoin, while still protecting the U.S. financial system?
PATTERSON: Michelle, would you like to kick us off on that one?
MEYER: Sure. So it’s obviously something that, at Mastercard, we spend a lot of time thinking about in terms of the digitalization of the payment space. And I think the general view is the more that we can digitize it, the better we will be as a global economy. The more that we can enhance and support financial inclusion, the better we will be. So, you know, I think across the board there’s a lot of innovation happening in this space. There’s a lot of thought and work being done in terms of how to expand access to credit, how to expand access to overall payments, particularly digital payments. And, ultimately, that leads to more growth, greater growth, broader growth. So in general, it’s a net positive in terms of supporting more liquidity and growth in the economy.
PATTERSON: Maybe I can take a little bit of the glass half-empty side, just for completeness’ sake if nothing else. But when I think about the GENIUS Act, and I think about what we’ve gotten and where we’re going, maybe two quick comments. One is that while I think having any regulatory guardrails is incredibly helpful, protecting consumers, letting people just know what the rules of the road are—so that’s good news—you know, there are still some questions around the degree of regulatory safeguards. Do we have enough in place at this point? And I think you’ll hear different people with different views on that. I think another interesting angle of this gets back to those borrowing costs and managing deficits.
And, you know, the greater the adoption we see of a specific type of crypto, called stablecoin, which just mimics, in the United States’ case, the basic one is the dollar of stablecoins, who are mimicking the value of the dollar. And doing that largely by having risk free short-term government assets, T-bills, et cetera. And their hope is that by getting more adoption of stablecoin you’ll have more demand for these short-term treasury instruments. And that can help, all else equal, in terms of financing the deficit and keeping borrowing costs low. Of course, these are all short-end instruments, but they’re seen as part of a solution. Also protecting dollar dominance globally if you can have a dollar stablecoin out there in the world. And there are places that would rather have dollars than their own local currency, or have it for other reasons, that could also increase adoption. Which, again, would help on the budget side.
One last thing I’m watching is, do some of these companies that are offering some of these digital assets—do they get access to the Fed window? How are they categorized by regulators? Do they have to play by the same rules as the banks, or slightly different rules? And if they get into trouble, do they get bailed out by the Fed? And I think that’s something to watch because as these assets get bigger and bigger and more integrated with the traditional banking system, there’s a greater risk of actual contagion. When FTX, Sam Bankman-Fried, happened a few years ago there was almost no contagion because it was still pretty siloed. And I think that’s quickly changing. So the contagion channel becomes something more important to watch as these things become more mainstream and more developed.
I don’t know, Phil or Fabien, if either of you had thoughts you wanted to share on this. Otherwise, we can go to the next question. OK.
CURTO MILLET: Nothing to add. I think you guys have covered it super well.
PATTERSON: OK. CFR folks, do we have another question at this time?
OPERATOR: We will take the next question as a written question from Frank Brown at General Atlantic, who asks: How do you see potential rebuild of Ukraine and Gaza impacting the global economy in the near to midterm?
PATTERSON: Well, I’m happy to take a lead on that. You know, we have no idea on timing. And we have no idea what the settlement—I’d love to say peace, but I think that’s optimistic—what the settlement could look like. And what it looks like I think will give us a lot of insight into what the rebuild looks like, right? Is Russia allowed back into the global financial system? Are sanctions lifted? How much energy are they allowed to export over what time frame, for example? Is this going to be U.S. driven? How much will Europe have a role? So there’s, to me, more questions than answers in terms of the reconstruction of Ukraine, both the timing, who does it, and what are the conditions under which it happens, where the money comes from.
That said, we know there’s going to be a huge amount of reconstruction ahead. And, all else equal, it makes me continue to be modestly bullish on the upside in terms of infrastructure spend, fiscal spend out of Europe. Now, the question and the challenge with that, of course, is what fiscal space? You know, Germany has quite a bit of fiscal space right now, but we’ve seen the—you know, the baby Liz Truss fiscal crisis moments out of France over the last year or so. We saw them a little bit last week in Japan. Of course, it all kicked off in 2022 in the U.K. So for the countries with less fiscal space, if there is a Europe push to reconstruct, where is the money coming from? How is it financed? How is it absorbed by financial markets? So I’m optimistic that it’s going to be a big stimulus for Europe but depending on how it’s financed I think we have to be a little careful how easily the bond markets absorb it.
I don’t know if any of my colleagues here on the webinar have anything to add. I know you all probably are not focusing on Ukraine reconstruction as much as some other economists out there, but in case you have been talking to companies that might be involved.
MACKINTOSH: I mean, my view on all this—I mean, there’s so many risks out there that we haven’t talked about, it kind of goes completely against how we started talking this afternoon. Like, everyone’s got a consensus. I think everyone’s also aware that there are lots of risks. But what is possible is not necessarily what’s probable. And to your point, Rebecca, like, in the next twelve months, like, this might not actually happen for twenty-four, or thirty-six, or—like, we just don’t know so many things. And so I think generally, at least the economists that I get to read, aren’t looking far enough ahead to start thinking about that because it’s not necessarily immediate enough or probable enough to start factoring into models.
PATTERSON: No, I think that’s a great point, Phil. And, you know, when I’m talking to companies around the world, more of the questions I’m getting—some are on the year ahead, but an equal number are on if we’re making a strategic investment for the success of our firm down the road, how do we get through the noise? What should we be focusing on? And that takes me back to a point, Phil, you made earlier on demographics. It takes me, Fabien, to what you’re talking about with technology. Michelle, it takes me to who has consumers. So will the Chinese consumer ever recover, or do we need a complete sea change in Chinese policy? Fabien, will technology be dispersed broadly around the world, or is it winners and losers, and if you don’t have AI and AI adoption you’re left behind? And, Phil, to your point, you know, if you are a declining-population country without immigration, you’re even more dependent on that technology or something to boost productivity.
I’d be curious, I’m sure you all are looking out beyond 2026. Let me start with what I think is an easier one, so is the U.S. still going to be the relative winner, the exceptional one, in five years’ time? When you think about, we have the technology, demographics aren’t as bad as some places but they’re not looking great these days, we do have the debt overhang. Are we still the nicest house on the block three to five years out?
MACKINTOSH: I think that’s probably the right way to look at it. What’s interesting—I mean, the reason the Nasdaq 100 has out-performed so many other equity markets in the world is a lot of the AI technology and IP and build is coming from American companies. And so I think that’s going to help America going forward. There is a few companies in Asia—I mean, Taiwan Semiconductor is obviously a classic example that is exposed to AI and is not an American company. But we have so much more of the intellectual property, even Fabien talking about like whether we’re ahead of the models from coming out of China or not. So I think that’s going to help us going forward. To your point, you can’t stop the demographics but you can improve the productivity. And AI is probably one of the better ways to do that.
CURTO MILLET: I mean, jumping on this since I heard AI. So I’m bullish on America. I mean, we’re at the frontier. We have the talent. But we need to play our cards right. I mean, you know, AI is not something that just falls from the sky like manna from heaven. You need to actually take deliberate actions for it to happen. And those deliberate actions are an all-of-government affair, from energy policy to, you know, supporting people through training and the transition. And the competition is certainly, as I mentioned, hot on the heels. Research and development, for example, China is now out-investing us. And R&D is something that has huge multiplier returns. I’m thinking of research by Ben Jones over at Northwestern. There’s a multiplier effect of 5X. It’s money very well spent. And for the first time, you know, China is outspending us on something like that. So let’s be, you know, very, very careful, because we have, you know, all the cards in our hands, but they will need to be played right as a society.
PATTERSON: Yeah. I couldn’t agree with you more. I mean, I think there’s a lot of good things going on right now, AI being pretty much the top of my list. But then, even if we want to have stronger border controls, if we’re making it harder to get skilled immigrants in the country, or maybe it’s not harder but we’re having a chilling effect on them wanting to come here right now, that’s not working in our favor. Taking money away from research and development at universities that tend to be commercialized and monetized, and leading to some of that innovation, that works against us as well.
And the job training. We don’t know when and how many jobs will be displaced by AI. I completely agree with you, Fabien, that over the longer term we will be net positive jobs. But in that interim period, how are we training it? Who’s training? I think your company is doing quite a lot of training. And I’ve seen others too. The government has announced that it has a million job training program. I think it was an executive order last year. But I haven’t seen anything rolled out yet. And I hope—if someone’s on this call and knows something happening, let me know. Because I’m trying to follow it and I haven’t seen anything happen yet on that. So I think there is a positive story here but, as you said, it’s not risk free. And we shouldn’t take anything for granted. Michelle, longer-term view from you.
MEYER: Yeah. I would say, in addition to the sentiment already shared, it would also be around having, you know, a healthy and open financial system, capital markets, a flow of credit, to help make sure that we have continued liquidity that’s smartly regulated. You know, and then I suppose another question, particularly in terms of how the markets think about it, is the role of the dollar going forward as well. U.S. is the reserve currency. That helps us tremendously in terms of keeping borrowing costs low and keeping us quite relevant and dominant when it comes to global financial flows. So keeping an eye on that, monitoring where that goes over the next few years, will be absolutely critical as well.
PATTERSON: Yeah. I mean, the dollar is definitely one of the reasons we saw a lot of overseas markets outperforming the United States equity market, and, frankly, bond market, last year. Some markets gained even without taking the dollar and foreign exchange into account, but that was definitely a kicker for some markets. I think we have another question on the line, if I can go back to my CFR colleagues.
OPERATOR: We will take the next question as a written question from Paul Maidment, who asks: How vulnerable is the U.S. economy to AI-powered cyberattacks? What are the highest risk points? And how well are companies and the government preparing defenses?
PATTERSON: Fabien, you know we’re going to turn that to you.
CURTO MILLET: Yes. It’s a natural one to lob in my direction, although as a humble worker in the vineyard of Adam Smith I’m no cybersecurity expert. So I do not have a gage on the sort of level of securitization of our sort of U.S. infrastructure, other than to know that Google, as a company, proposes the frontier solutions in this space, and this is a critical area. But I don’t have a benchmarking, if you will, that I can offer.
PATTERSON: The only thing I would add on that is I think it’s critically important for the government and private sector to continue communicating on this. And I think there’s been a lot of strides made over the last five, ten years, versus where we were, where companies almost saw it as a stigma to let anyone publicly know that they might have gotten hacked, or even a possible hack. And so there wasn’t enough communication. And I think we’ve seen a lot of change, even under the last administration with the AI Safety Institute at Department of Commerce. It’s been reshaped a little bit today, but there’s still a lot of effort going on. And I think to make sure we know within the government, within the Defense Department, within all the agencies, how to play offense, we also need to understand what’s happening at the frontier by our private companies. If we don’t understand, we don’t know how to protect. So I think that communication is pretty critical. And I’m hoping it’s happening to a sufficient degree. My understanding is it probably is,
Michelle, anything you want to add—jump in? Yeah, please.
MEYER: It also—yeah, I’d also offer that’s another area of innovation, the need for innovation, right? So we’re doing so much as a country, as a globe in terms of driving forward the AI technology, AI investment, and now AI adoption. But at the same time, to make sure that the innovation is happening in terms of cybersecurity and fraud, especially in a world where technology is moving so fast which could facilitate some of that cybercrime. So, you know, for us at Mastercard it’s a big part of our investment strategy is to make sure, within the payments world, that there’s the highest degree of security in terms of payments fraud, and trying to reduce—actively reduce cybercrimes as well. So it’s something that I think is happening in many different industries in terms of trying to make sure that that’s minimized in a world where technology is moving so fast. So the innovation should absolutely be happening there as well, just as fast as the innovation is in terms of AI.
PATTERSON: Yeah. No. Agreed. Agreed. Well, thank you.
Listen, I don’t think we have any more questions at this point and I want to be respectful of everyone’s time. I’m going to give a quick plug. I just published a research note, this afternoon actually, on CFR’s website, looking at some of the economic policies that might be ahead of us this year. And I was referring to Stephen Miran’s research paper from 2024, which I found—whether it’s coincidental or not—but a significant amount of the policies he talked about in his original paper became reality last year, from restructuring global trade to getting countries to pay more for their own defense, et cetera. And so I took a look at it again over the last few days, trying to say, OK, if this is more than coincidental, what could be next?
And I’ll tell you a couple things he discussed were currency intervention to weaken the dollar. And we’re now seeing the dollar at, I think, multiyear lows after some intervention discussion in the last few days with Japan. He talked about that Treasury-Fed accord and what that might look like. And then he also discussed in his paper more possible government intervention when it comes to foreign capital flows. And there is a regulation that’s in a comment period now that would affect some sovereign wealth fund and foreign pensions in terms of capital flows, which even though it’s marginal it’s a signaling effect that I think is worth noting.
So for those of us listening today who care about the U.S. economy, U.S. economic policy, and what it means for our companies, for the financial markets, some more food for thought for you on our website, in addition to this call. And I just want to thank my panelists so, so much for their insights today. Michelle, Fabien, Phil, great to have you joining us here at CFR. Thank you so much. And I hope everyone who was able to join in today, you found it equally useful. But I’ll just say thank you here. Best of luck for the year ahead. And to my CFR colleagues, I’ll let you wrap us up.
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