The nonpartisan Congressional Budget Office said last week that it expects the Federal Reserve’s key interest rate to dip to 3.4% by the end of the year, where it will settle until the end of President Trump’s term in 2028. That’s down from 3.9% in the fourth quarter of 2025.

But not everything that happens afterward will necessarily follow a seemingly logical pattern. Despite the Fed rate cuts, the CBO projects the yield on 10-year Treasury notes — which matters to you because it influences interest rates on auto loans, mortgages and credit cards — will rise little by little, from 4.1% in Q4 2025 to 4.3% at the end of 2028. (Mind you, this was before Fed Chair Jerome Powell revealed on Sunday that Trump’s Justice Department threatened him with a criminal indictment for testimony about agency building renovations, in what he suggested is a “threat” to the Fed’s independence.)

Inflation Nation

Last year, the Fed’s rate-cutting spree that trimmed 75 basis points was the key driver of a bond market rally. That’s because lower policy rates typically push down yields, and that increases the value of earlier bonds that were sold with higher payouts. At the same time, robust corporate profits kept the additional yield investors require to hold corporate bonds instead of Treasuries near historic lows (analysts estimate S&P 500 firms’ earnings rose 13% last year, according to LSEG). At the end of the day, the Morningstar US Core Bond TR YSD index returned 7.3% last year, the highest in five years.

The Trump administration would prefer that the past remain prologue and interest rate cuts continue to signal a bond rally, pushing down yields, and ultimately lowering borrowing costs. The White House has even taken steps that seem designed to reduce the key 10-year Treasury yield, most recently instructing Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities to apply downward pressure on interest rates. Meanwhile, markets are pricing in roughly a 33% chance of two quarter-point cuts this year, according to CME FedWatch.

But the 10-year yield has remained stubbornly high of late, especially relative to the two-year yield: In recent days, the spread between the two, which registered at 63 basis points on Friday, has been hovering near the highest levels since April. Markets call this a steepening yield curve, and it potentially signals a few things:

• Namely, that investors foresee higher long-term inflation and/or economic growth, which makes them demand a higher yield to offset those things eating into their return. Indeed, Morningstar predicts inflation will rise to 2.7% in 2026 from 2.6% last year, as businesses increasingly pass on tariff costs to consumers.
• Another investor concern that may keep yields on longer-dated bonds elevated is the federal deficit, which the CBO projects will be $1.7 trillion (or 5.5% of GDP, zoinks!) in fiscal year 2026.

Still A Good Bet: “For investors, the bond market remains a source of stability and reliability in uncertain times,” analysts at Raymond James wrote earlier this month, noting Treasurys remain a tried and true safe haven. “We do not expect any dramatic sustainable moves and see the 10-year Treasury yield ending 2026 in the 4.25% to 4.5% range.” Things could change, however, depending on the relationship between the White House and the Federal Reserve. “The market will punish people if we don’t have an independent Fed,” Bank of America CEO Brian Moynihan said last month.

Step aside, Marty Supreme. There’s a new table-tennis champ in town: a robot from Singapore-based AI company Sharpa, which showed off its ping-pong skills (and card-dealing skills) at the Consumer Electronics Show (CES) last week.

Sharpa’s new product — which appears to boast especially dexterous hands, for robots at least — was one of countless new humanoids making a big splash at the big tech showcase. And, sure, these robots walk like humans and some talk like humans and some play ping-pong like humans. But can they really perform in the workplace like humans? Consider it the $5 trillion question.

Are We Humanoids, or Are We Dancers?

That’s how big Morgan Stanley thinks the humanoid industry could become by 2050. Over that time, the bank expects an invasion of more than 1 billion humanoids, who will dominate industrial and commercial landscapes in the coming decades. Right now, humanoids represent a roughly $2 billion market globally, by most estimates. There’s a lot of room to grow — which is why robots were such a major theme at CES this year. “Physical AI” became the conference’s biggest new buzzword, with Nvidia CEO Jensen Huang saying the “ChatGPT moment … when machines begin to understand, reason and act in the real world” is nearly upon us for humanoids.

As CES made abundantly clear, one country appears to be in the lead. “China’s humanoid robotics market is innovating at an extraordinary pace,” Nadav Orbach, founder and CEO of California-based computer-vision startup RealSense, told Bloomberg. The proof isn’t just in the chorus line of choreographed robot dancers at CES (courtesy of Chinese-firm Booster Robotics), but in the actual sales numbers, too:

• Chinese firms were responsible for the vast majority of the 13,000 humanoid robots shipped globally last year, research firm Omdia told Bloomberg last week. Industry-leader Shanghai AgiBot Innovation Technology shipped 5,168 robots on its own.
• In total, sales more than quintupled in 2025 compared with 2024, Omdia said. The Chinese models tend to be considerably cheaper than what’s expected to come out of America; AgiBot’s baseline model goes for $14,000, compared with the $20,000 to $30,000 price tag Elon Musk says Tesla’s yet-to-reach-full-production Optimus bots will go for.

Speaking of Musk, the Tesla founder knows full well the competition he’s up against. “I’m a little concerned that on the leaderboard, ranks 2 through 10 will be Chinese companies,” Musk said of the robotics market last year. (Musk, of course, has Tesla penciled in for the top spot.)

The Real Deal: Show floor party tricks are one thing, but a robot takeover is still a long way off. “Although the humanoids were the ones that grabbed everyone’s attention, and it was the best kind of eye candy for the show, we’re still a very, very long way from the commercial implementation of these,” Ben Wood, chief analyst for CCS Insight, told CNBC.

The Federal Reserve has its work cut out for it figuring out this job market.

Bureau of Labor Statistics data released Friday showed 50,000 jobs added in December, fewer than economists had expected. That caps off the worst year for hiring since 2020. While unemployment ticked down to 4.4% from a revised 4.5% in November, figures overall point to continued weakness for a labor market that spent most of 2025 in a “low-fire, low-hire” state.

What does that mean for employment? The data is “a good representation of what I think the market will look like for 2026,” characterized by choppy hiring and weak overall labor force growth, but relatively low layoff numbers, says Ross Mayfield, investment strategist at Baird. Last month, JPMorgan’s research team predicted “uncomfortably slow growth in the labor market” in the first half of 2026, which will reverse later in the year.

Labor Productivity

Come Jan. 28, the Fed has to decide what the state of the labor market means for monetary policy. While the central bank cut interest rates three times at the end of last year, minutes from the Dec. 9-10 meeting show that policymakers are divided about whether the sluggish labor market or inflation is a bigger threat to the economy, and how much to lower rates in 2026.

Some experts say investors may be overestimating the likelihood of further decreases:

• The market is “too optimistic about the Federal Reserve’s ability to cut rates this year,” Dennis Follmer, chief investment officer at Montis Financial, wrote in a statement shared with The Daily Upside.
• “Though Fed leadership is firmly focused on arresting any additional labor market weakness, this print should provide ammunition for the hawks advocating for more of a focus on inflation and a pause at the January meeting, which we now think will occur,” Christopher Hodge, chief US economist at Natixis, told Morningstar after the December jobs numbers were reported.

AI Effect? Labor productivity climbed in the third quarter to its strongest pace in two years, but while roughly 18% of firms in the US say they’ve used artificial intelligence in the past two weeks, it’s unclear yet if that’s causing the productivity boom, Bloomberg reports.