Inflation Still Above Target, China Economy Evolves, AI Productivity Gains Unclear

Inflation and job figures could lead to Fed rate cuts in 2026, China economy shifts to focus more on services, employers tout big AI gains, but employees don’t agree.

In this week’s Steady Investor, we examine how today's market environment is affecting financial planning, including factors such as: Inflation cools, but unevenly China’s growth model shifting AI productivity gains lag expectations The “Last Mile” of Inflation is Getting Harder, and It Could Complicate Rates – Inflation moved slightly further from the Federal Reserve's 2% target in November, though the data came in broadly as expected. The personal consumption expenditures (PCE) price index, which is the inflation measure most closely watched by the Federal Reserve, showed both headline and core inflation running at 2.8% in November. That marked a modest uptick from October’s 2.7% reading, according to data released by the Bureau of Economic Analysis. Monthly inflation increased 0.2% in both October and November, which was consistent with expectations. Looking beneath the surface, price pressures remained relatively contained. Goods and services prices both rose 0.2% in November, food prices were flat, and energy costs increased after declining in October. While inflation remains above the Fed’s target, there was little in the report to suggest a renewed acceleration, which we think keeps the door open for one or two more rate cuts in 2026. At present, markets expect the Fed to hold interest rates steady at its upcoming policy meeting, but inflation that is not getting worse—while the jobs market shows signs of softening—could bring the fed funds rate down over the course of the year. And that should serve as a tailwind for equity markets, in our view.1 Is Your Retirement Crisis Proof? With markets facing persistent inflation, higher interest rates, and ongoing volatility, retirement plans built on smooth assumptions can be tested quickly. The periods that matter most are often the most unpredictable. Our free retirement guide 2, explains how to build a retirement strategy designed to remain resilient through changing market and economic conditions. In this guide, we explain: How to diversify across time, tax treatment, and income sources Which overlooked risks pose the greatest threat to long-term security How to build flexibility into your withdrawal and investment approach Why annual reviews are essential for staying on course How a research-driven advisor can help reinforce durability And more… If you have $500,000 or more to invest, request your complimentary copy of the guide to better understand how to build a more resilient retirement strategy. IT’S FREE. Download our latest guide, How to Build a Retirement Plan Designed to Withstand Uncertainty 2 A Big Shift is Underway in China, and Investors Might Be Misreading It – China’s economic story is often framed around manufacturing output, exports, and fixed investment. But recent policy signals suggest that China is increasingly focusing on a different lever: household consumption, particularly in services. Authorities are exploring ways to encourage spending on healthcare, elderly care, leisure, and other service-oriented activities, reflecting an effort to rebalance the economy away from its long-standing reliance on factories and infrastructure. Recent data shows that growth in services activity has outpaced that of goods, even as overall consumer spending remains subdued by global standards. Chinese households are allocating a larger share of spending toward services such as travel, entertainment, and care-related needs, a pattern consistent with rising incomes, an aging population, and saturation in durable goods ownership. That said, household consumption still represents a relatively small share of China’s overall economic output compared with most developed economies, reflecting income constraints and a social safety net that remains less comprehensive. For global investors, the key point is not that China is abandoning manufacturing or exports, but that the composition of growth is evolving. As this rebalancing unfolds, it may complicate familiar narratives about China’s economy. The transition does not eliminate structural challenges, nor does it guarantee stronger growth. But it does suggest that traditional measures of strength or weakness may no longer capture the full picture of how China is attempting to sustain economic activity over time.3 Employers See Big AI Gains. Employees Do Not. Who’s Right? – Artificial intelligence is widely viewed as a powerful long-term driver of productivity growth, and by extension, corporate profits and economic output. Over time, that belief may well prove correct. But recent evidence suggests the near-term impact inside businesses is not as linear as the headlines imply. Surveys show a widening gap between executive optimism and day-to-day employee experience. In a recent study of 5,000 white-collar workers, most non-management employees reported saving little to no time from using AI tools, while a significant share of executives said AI was saving them the equivalent of a full workday each week. Many workers described feeling overwhelmed, uncertain about how to integrate AI into their roles, or burdened by the need to double-check and correct AI-generated output. This friction is showing up across corporate America. A report from Workday described an emerging “AI tax” on productivity, where time saved using AI is often offset by rework and error correction. Even among employees who reported modest time savings, benefits were uneven and unpredictable, with some tasks dramatically accelerated and others taking longer than before. Crucially for investors, this disconnect has not yet translated into meaningful financial gains. Instead, it highlights an important transition phase: productivity improvements may depend less on raw computing power and more on training, workflow redesign, and human judgment. In our view, AI’s promise remains intact, but its payoff appears more evolutionary than immediate. 4 Building a More Resilient Retirement Plan - Markets don’t move in straight lines, and retirement plans shouldn’t assume they will. Inflation, interest-rate shifts, and market volatility can materially affect long-term outcomes. Our free retirement guide 5 explains how to build a strategy designed to stay flexible and resilient as market and economic conditions change. In this guide, we explain: How to diversify across time, tax treatment, and income sources Which overlooked risks pose the greatest threat to long-term security How to build flexibility into your withdrawal and investment approach Why annual reviews are essential for staying on course How a research-driven advisor can help reinforce durability And more… If you have $500,000 or more to invest, request your complimentary copy of the guide to better understand how to build a more resilient retirement strategy. About Zacks Investment Management Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. At Zacks Investment Management, we work with clients with $500,000 or more to invest, and we use this independent research, 35+ years of investment management experience, and tools we’ve developed to design customized investment portfolios based on each client’s individual needs. The end result is investment management that is research driven, results oriented and client focused. Talk to a Zacks Wealth Advisor today. © Zacks Investment Management  |  Privacy Policy 1  CNBC. January 22, 2026. 2 Zacks Investment Management reserves the right to amend the terms or rescind the free How to Build a Retirement Plan Designed to Withstand Uncertainty offer at any time and for any reason at its discretion. 3  MSN. October 1, 2025. 4  Wall Street Journal. January 21, 2026. 5 Zacks Investment Management reserves the right to amend the terms or rescind the free How to Build a Retirement Plan Designed to Withstand Uncertainty offer at any time and for any reason at its discretion. 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