The Federal Reserve acknowledged a significant increase in economic uncertainty in a report released Tuesday, signaling potential headwinds for U.S. Economic policy in the coming months. The report, titled “Downside and Upside Economic Uncertainty,” details a decomposition of real economic uncertainty (REU) since 2020, noting a substantial jump coinciding with the onset of the COVID-19 pandemic and sustained elevation for several years.
According to the Fed’s analysis, economic uncertainty is comprised of both “upside” and “downside” components. The report does not specify the current ratio between the two, but highlights the overall increase as a key factor influencing economic conditions. This assessment arrives as the U.S. Economy navigates a complex landscape of potential disruptions, including interest rate adjustments and concerns about a possible stock market bubble, as identified in a recent policy brief from Stanford University’s Institute for Economic Policy Research (SIEPR).
Jared Bernstein, a Distinguished Policy Fellow at SIEPR and former Chair of the Council of Economic Advisers under President Biden, alongside Ryan Cummings, SIEPR’s Chief of Staff, and Neale Mahoney, the Trione Director of SIEPR, co-authored the Stanford brief. Their research points to policy uncertainty and the potential impact of artificial intelligence as significant factors shaping the economic outlook for 2026. Erika McEntarfer, a Research Scholar at SIEPR and former Commissioner of the Bureau of Labor Statistics, also contributed to the analysis.
The World Economic Forum recently highlighted the broader impact of uncertainty on the global economy, with one expert stating that “uncertainty has become its own economic actor.” The IMF has also long studied the economic impact of uncertainty, focusing on how companies evaluate investments as a series of choices factoring in potential risks and rewards.
The SIEPR brief further identifies affordability as a continuing concern for consumers, alongside issues related to the national debt and the evolving dynamics of the labor market, characterized by a “low-hire, low-fire” approach. The Federal Reserve has not yet publicly outlined specific policy responses to the increased economic uncertainty detailed in its report.
