INVESTMENT OUTLOOK OFFERS FIRST LOOK AT 2026

American Century's chief investment officers share what they expect in the new year on a reaccelerating economy, monetary policy and an AI bubble

KANSAS CITY, Mo., Dec. 10, 2025 /PRNewswire/ -- In its first 2026 investment outlook, American Century Investments, a global asset manager with more than $300 billion* in assets under management, offers at-times-contrarian insights from its chief investment officers (CIOs) on what they expect to be a reaccelerating economy, monetary policy, an AI bubble and concentration trends.

Tax refunds and Fed rate cuts cue economic reacceleration in 2026

American Century's CIOs express an optimistic outlook for the U.S. economy in 2026, highlighting several key factors that support their positive perspective. They point to the anticipated boost from federal tax refunds and the cumulative impact of previous Federal Reserve rate cuts, among other drivers of renewed growth. Their insights set the stage for a deeper discussion of how these elements may shape the coming year.

"The U.S. economy should reaccelerate as 2026 progresses," said Charles Tan, chief investment officer of fixed income for American Century, citing several factors, including a "consumer spending boost" from approximately $400 billion in federal tax refunds, potentially "lifting" corporate earnings, and the "cumulative effects of Fed easing" which are expected to reach the economy in 2026.

Building on the expectation of economic momentum driven by consumer spending and Fed policy, Keith Lee, co-chief investment officer of global growth equity for American Century, further highlights how tax refunds and the timing of monetary stimulus are poised to reinforce growth in 2026.

"We expect further stimulus in early 2026 to come from tax refunds under the One Big Beautiful Bill. Our analysis shows that those making between $50,000 and $500,000 will receive refunds ranging from $580 to $4,900. We estimate that approximately 107 million tax returns fall in this range," said Lee. "Note, too, that there's already positive monetary stimulus in the pipeline because there's a considerable lag between Fed rate changes and their eventual economic effects. As a result, the Fed's rate cuts in late 2024 should just now be beginning to take effect."

A contrarian perspective on monetary policy: one rate cut in 2026

A major area of focus for market commentary is what the Fed will do with interest rates, and in its quarterly investment outlook, American Century offers a dissenting take on this question.

"The futures market expects a series of Fed rate cuts next year. We're not convinced. With the economy likely to reaccelerate as the year progresses, we currently expect only one Fed rate cut in 2026," said Tan.

Despite his expectations, Tan hinted at an unpredictable element to keep in mind.

"There's also another factor to consider. We believe the Fed's future course hinges on who becomes the next Fed chair. Jerome Powell's term ends in May, and President Donald Trump has indicated his desire for the Fed to cut rates more aggressively." Charles Tan

Acknowledging that the outlook for monetary policy is "complicated," Lee described the competing dual mandate facing the Fed: "On the one hand, the market has been pricing in additional rate cuts in late 2025 and 2026. On the other hand, we doubt that the Fed will cut as aggressively as the market seems to expect. This is because all the major core inflation measures are rising and remain well above the Fed's 2% target, according to the latest data."

Ultimately, Lee concluded, "Will the Fed feel the need to slash rates further with so much stimulus on the way?"

90s is in fashion, but not its bubble: an alternative view on an AI bubble

Despite widespread speculation about the potential for an AI bubble, investors continue to pour money into the sector, drawn by its promise and ongoing innovation, even as questions about sustainability and valuation linger.

"While the questions are valid, we disagree with the broad conclusions about an AI bubble. Bubbles are usually marked by excess, such as excess capacity and excessive debt, which are two clear examples," said Lee.

However, while AI continues to attract significant capital, Lee described the current environment as one that lacks the speculative excesses typical of historical bubbles, suggesting that the sector's growth is being driven more by tangible innovation and profitability.

"We don't currently see excessive debt financing," said Lee, who elaborated that the companies that are investing significantly in AI "report significant bottom-line improvements from using AI. So, the largest AI spenders and most advanced AI users are seeing a contribution to profitability from the technology."

While the current AI investment landscape may lack the hallmarks of a speculative bubble, not all AI opportunities are equally promising. Evaluating AI investments, then, is another area where active management can help distinguish between value creators and riskier, less substantiated ventures.

"Of course, we don't believe that all AI spending or companies are created equal. Investments that are debt-financed and have uncertain use cases are right to be questioned. We're continuing to seek more evidence of a return on AI investment by asking pointed questions of corporate management teams. This is a crucial component of our approach. We believe that identifying potential AI winners will come from deep, fundamental research and insight into company financials," said Lee.

For more quarterly investment insights for 2026, read the full American Century investment outlook, with insights on:

• Global macroeconomic outlook,
• U.S. equity outlook,
• Global equity outlook,
• Global fixed income outlook,
• Multi-asset strategies outlook and
• Sustainable investing trends.

About American Century Investments 
American Century Investments is a leading global asset manager focused on delivering investment results and building long-term client relationships while supporting breakthrough medical research. Founded in 1958, American Century Investments' 1,400 employees serve financial professionals, institutions, corporations and individual investors from offices in Kansas City, Missouri; New York; Los Angeles; Santa Clara, California; Portland, Oregon; London; Frankfurt, Germany; Hong Kong; and Sydney. Jonathan S. Thomas is chairman, chief executive officer and president, and Victor Zhang serves as chief investment officer. Delivering investment results to clients enables American Century Investments to distribute over 40% of its dividends to the Stowers Institute for Medical Research, a 500-person, nonprofit biomedical research organization with a focus on foundational research. The Institute owns more than 40% of American Century Investments and has received dividend payments of more than $2 billion since 2000. For more information about American Century Investments, visit www.americancentury.com. 

*Assets under supervision as of 12/01/2025.

©2025 American Century Proprietary Holdings, Inc. All rights reserved

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

The opinions expressed are those of American Century Investments (or the fund manager) and are no guarantee of the future performance of any American Century Investments fund.

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SOURCE American Century Investments