The Fed's Not Budging, Inflation Is High, But Retail Boosted By Trillion-Dollar Holiday Sales

U.S. retailers have gone into 2026 buoyed by resilient holiday season sales that passed the $1T mark, with the prospect of a flood of tax rebates boosting the consumer economy in April — but with interest rate cuts off the table this year, according to the U.S.’ biggest bank.

The full impact on U.S. retail sales of tariffs is also yet to be fully understood. So despite a robust 4% year-over-year growth in sales for the holiday season and a much more active retail real estate market, mall owners were warned that the retail picture is far from clear for the next 12 months. 

Amid the robust spending figures, there are warnings — such as the slow-burn bankruptcy of Saks Fifth Avenue last week — that the recovery of retail real estate is far from a broad trend.

“We don’t think the Fed is going to cut rates any more, and inflation is not coming down,” J.P. Morgan Managing Director and Chair of Global Research Joyce Chang told a record 41,000 attendees who packed the aisles of New York’s Javits Center at the National Retail Federation industry conference Retail's Big Show last week.

That will leave inflation stuck at around 2.7%, which leaves interest rates high for longer, Chang said. Lower oil prices, down roughly 25% in the last year, have helped at the margin, but not enough to change the Federal Reserve’s stance.

Chang said the U.S. economy had performed well and that the story this year will be resilient growth. But higher inflation and rates make life tougher for real estate owners and the consumers the retail property sector relies upon. 

Despite this, overall U.S. consumer demand has held up, with JPMorgan Chase card spending data showing about a 4% average increase across income groups last year, Chang said.

Those figures chime with a raft of data presented last week from the NRF and other spending specialists that put holiday season spending for the period from Nov. 1 to Dec. 31 up anywhere between 3.7% and 4.1% compared to 2024.

But wealth drivers have changed. Asset price increases in 2025 supported headline growth and will shape this year, Chang said. It has driven a sharp bifurcation in the economy: For the year ahead, wealth gains generated from asset inflation will exceed economic growth.

The top 20% of consumers have realized about two-thirds of total wealth creation, while around 40% of Americans don’t own a home or equities, underscoring a shift from income to assets.

That has created what many analysts have described as a K-shaped economy. Pyxis by Bain & Co. Senior Director Peter Volberding said the top 10% of consumers by earnings accounted for around 80% of discretionary spend.

However, he said that he believes the K could flatten this year, with most of the impact of tariffs having filtered through or rolled back.

Volberding also said there were clear retail category winners and losers going into the new year, with current trends set to continue.

Online marketplaces were the big winners, up 22.7% in the holiday period, he said. Wholesale clubs like Costco and the beauty brands did well, but department stores, sports and consumer electronics were all down, Volberding added.

The bankruptcy of Saks last week highlights the fact that, even if wealthier consumers have more disposable income, they aren’t necessarily minded to spend it in legacy physical retail.

While the shopping center industry group ICSC said 92% of younger shoppers went to physical stores over the holidays, Generation Z's renewed enthusiasm for malls has also been overplayed, according to YPulse Chief Content Officer MaryLeigh Bliss, who said shopping centers need to pay more attention to creating hangout spaces if they don't want to get left behind.

“Many Gen Z consumers don't see the need to save, but they are looking for [financially] accessible treats and experiences, and landlords need to think about how they offer that in their tenant mix,” Bliss said.

Indeed, outside of lower-income households, the cost-of-living squeeze is particularly pronounced among younger consumers, with Gen Z shoppers having spent their formative consumer years in difficult economic times, according to 84.51° Director Maria Arand, who said this behavior may have stuck and may inform their long-term buying habits.

“Younger people are valuing down in their shopping habits and are very keen on promotions, and they have been impacted by the constant stream of negative economic news and global political instability,” she said.

“Those habits are probably embedded now.”

J.P. Morgan's Chang predicted a potential front-loading of consumer spending this year, with the tax rebates from the passing of the One Big Beautiful Bill Act last year set to return around $20B to American taxpayers.

Allied with strong U.S. holiday season results, the near-term outlook for mall owners should be positive, but the market remains highly polarized, leaning toward either prime locations or grocery-anchored and value centers.

According to Altus Group's Reonomy data, around 50 malls sold in 2025, the third-highest total in the past 20 years, and new players such as Toronto-based Oxford Properties have been drawn to the market. Oxford spent $250M on two Texas malls with Pine Tree late last year.

This month, Baltimore-based MCB Real Estate added 2.2M SF of shopping centers to its 20M SF portfolio after acquiring Epic Real Estate Partners, a private investor specializing in grocery-anchored retail real estate.

In its Emerging Trends in Real Estate outlook for 2026, PwC identified lifestyle and entertainment centers and neighbourhood and community centers among the top five of all commercial subsectors for real estate investment prospects, while standalone retail ranked third for development. All three were rated strong buys based on survey respondents.

“Consumer spending is holding up in the barbell of luxury and value categories, although tariff impacts are ahead,” PwC warned.