Trump says affordability is a 'hoax,' but consumers should expect more pain in 2026

By Quentin Fottrell

Tariffs, an AI boom, geopolitical divisions and a new administration ushered in a unique, unsettling year for consumers

The president is correct in one sense: affordability is a con job, but for consumers.

Whatever that was, it wasn't boring.

The year started with a bang, with President Donald Trump taking office and launching tariffs that caused shockwaves in the stock market, leading investors to sell, sell, sell, then buy, buy, buy. Supply-chain issues have pumped up the cost of everything from groceries to clothing to cars. We've had one hell of a year.

It ended with a slow burn, as the U.S. Federal Reserve cut interest rates at three consecutive Federal Open Market Committee meetings with concerns about the labor market front and center. Business owners have been reluctant to borrow amid high rates, economic uncertainty and tight lending standards, and have cooled off on hiring new workers.

What can we learn from the past 12 months? Ultimately, that so much is out of our control. As much as we would like to control the policies of whatever administration occupies the White House, whether or not you voted for the president, we cannot. And geopolitical events will unfurl as we watch helplessly from afar.

Take your pick: Violent unrest in the Middle East, a war in Ukraine that does not look like it's ending anytime soon, a Federal Reserve finally engaging in a reluctant dance with inflation and the jobs market, slowing wage growth, mortgage rates still above 6% as millions of first-time buyers are locked out of the housing market and household debt at an all-time high.

A slowdown in wage growth will make affordability worse.

It's been a year of conflicting signals and economic puzzles. Gross domestic product actually contracted by 0.6% for the first three months of 2025 but rose by 3.8% in the second half, helped by an improvement in consumer spending, an increase in exports after tariff jitters eased and an increase in government spending.

Despite the constant drumbeat of recession indicators - and predictions by economists that we could be one quarter away from recession - widely defined by a prolonged downturn in economic activity and/or two consecutive quarters of negative real GDP growth - a recession never materialized in 2025. Many others predicted a soft landing.

Instead, AI is fueling growth, and consumer prices are dampening demand. In echoes of past financial disasters, people are borrowing money to buy crypto, a highly volatile asset. Without AI data centers and software, some economists have claimed that GDP would have been virtually flat in the first half of 2025.

Kathleen Vohs, a consumer psychologist and marketing chair in the Carlson School of Management at the University of Minnesota, said 2026 will, despite the ringing of New Year's bells, resemble the worst parts of 2025. "In 2025, some firms tried to bear the brunt of the tariffs themselves, but they will find that's not feasible over the long run."

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The three pillars of transport, housing and food all present an ongoing challenge.

A 'household' recession

One bright spot: Average gas prices are below $3 a gallon, the lowest since 2021. "That doesn't offset the real price hikes consumers are seeing in many other places," Vohs said. "So the drag on the economy, plus evidence that the job market is weakening, will keep consumers in a negative mood about the health of the economy."

Trump has filled the post-government-shutdown data void with his own theory on consumer prices: "The word 'affordability' is a con job by the Democrats," he told a cabinet meeting earlier this month. "The word 'affordability' is a Democrat scam." That official line on prices is unlikely to be enough to ease consumer concerns.

He also called affordability a "hoax." The president is correct in one sense: The affordability crisis is a hoax and a con job - but for consumers. Despite relatively solid GDP in the second half of the year and low unemployment, Americans are hobbled by a ball and chain - high prices and high interest rates.

We are, instead, experiencing an "affordability recession," a con-job downturn in everything but name. November's unemployment rate, meanwhile, climbed to a four-year high of 4.6%, the government said Tuesday. The inflation rate was mostly under 3% a month this year, hit 2.7% in November, but prices are up 25% over the past 5 years.

Josh Bivens, chief economist at the Economic Policy Institute in Washington, D.C., says the welcome reduction in inflation since the pandemic has finally flatlined, but it may yet show some uptick next year. Wage growth from 2019 to 2024, particularly for lower-wage workers, "stopped pretty dead in 2025 and seems unlikely to reverse in 2026."

High prices have hobbled Americans with a ball and chain.

A slowdown in wage growth will create silent pain in 2026. "Consumers might chalk up their struggles to high prices or cost-of-living because they often don't even think they - or policymakers - have any real control over their wage growth, but wages are the blade of the scissors that does most of the cutting in terms of determining affordability," he adds.

Millions of Americans are experiencing a household recession. The increase in hourly pay in the 12 months ended in November slowed to 3.5% from 3.8%, the slowest annual rise since before the pandemic. In November, only 26.4% of consumers said they expect their finances to be "somewhat better off" or "much better off" a year from now, according to the New York Fed, down from 27.5% a month prior.

More revealing, perhaps, is a University of Michigan report, which put consumer sentiment at 51 in December, down from 74 a year ago. "Consumers see modest improvements from November on a few dimensions, but the overall tenor of views is broadly somber, as consumers continue to cite the burden of high prices," the report said.

The three pillars of transport, housing and food all present a challenge. The average price of a new automobile briefly touched $50,000 for the first time earlier this year, and most analysts would not be surprised if cars surpass that price in 2026. People who need to replace their cars are taking out longer loans at higher APRs.

Housing is equally difficult. Rents are expected to rise by 2%-4% next year, while most economists see house prices rising by 3% or more. Slow construction, homeowners unwilling to budge, high interest rates and sellers pulling their listings all contributed to low inventory in 2025. Yet again, realtors say next year will be different.

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Some things won't change

Don't expect consumers to act in a way that makes sense. "Sentiment and spending moving in opposite directions makes sense from a consumer psychology perspective," Vohs added. "When people feel badly, they can be prone to wanting to make themselves feel better through consuming food, drink, vacations, shopping - visceral pleasures."

Christina Adams, Kari Alldredge and Thomas Kilroy, consumer analysts with McKinsey & Co., compiled a paper with, perhaps, predictable conclusions: Younger consumers (Generation Z) are among the most optimistic amid deteriorating consumer confidence in the fourth quarter, and Americans will treat themselves regardless of the outlook.

Unless we're beaten by a subprime mortgage crisis, pandemic or stock-market crash, Americans will go on singing and spending. "The 'lipstick effect,' or the tendency for consumers to indulge in small luxuries or affordable treats during periods of economic uncertainty, has expanded beyond the beauty aisle," this trio wrote.

Consumers intend to pull back on their discretionary and semi-discretionary spending. (One small problem: I don't believe consumer-expectation surveys.) You could, if you squint, wonder how this year's consumer grievances differ from prior years. They include, in no particular order, a soft labor market, inflation and healthcare costs.

Don't expect consumers to act in a way that makes sense.

About the latter: Lest we forget, the U.S. spends more than $13,400 on healthcare per person, almost double the figure in other highly productive nations like Switzerland, Germany, Austria and Sweden. The U.S. also tops the list for the cost of education, with the student-debt mountain now hovering at $1.8 trillion. That won't change in 2026.

Americans are feeling the pinch. "The share of respondents who said they had dipped into savings to cover expenses or reduced the portion of their income allocated to savings each rose by three percentage points," the McKinsey trio wrote. "At least one in four respondents said they used their credit cards more and cut back on food spending."

"U.S. consumers signaled that for most essential categories, their spending intentions remained largely unchanged from the previous quarter. A slightly larger share of consumers said they intended to spend more on core categories, including meat, dairy and shelf-stable groceries, compared with the previous quarter," they added.

My predictions for 2026: Housing inventory will remain sluggish. Food prices will rise, along with energy and healthcare, as global supply chains experience disruption from the weakening economic ties between the U.S. and Europe and geopolitical tensions. Consumers will continue to spend and rack up record credit-card debt.

Brace yourself for a year of living similarly.

More columns from Quentin Fottrell:

'My retirement is completely in bitcoin': Why don't more people do what I do?

America is divided into two countries

My Taiwanese immigrant friend started working in Walmart for minimum wage and retired with $2 million. What was her secret?

(This story was updated on Dec. 16 with the latest jobs numbers.)

-Quentin Fottrell

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12-19-25 0750ET