Higher Prices Might Just Save the Economy from Mass Layoffs in 2026

Jakarta, Gotrade News - Morgan Stanley sees a chance for the US economy to dodge a wave of mass layoffs in 2026.

However, this positive outcome depends entirely on companies keeping their prices high.

Key Takeaways

• Morgan Stanley believes price hikes are necessary to restore corporate profitability after tariff pressures.
• Core inflation is predicted to hit 3 percent in early 2026 due to the lingering effects of tariff policies.
• Layoff risks will resurface if consumers start rejecting higher prices and cut back on spending.

Morgan Stanley's Chief US Economist, Michael T. Gapen, calls this move crucial for maintaining workforce stability.

Throughout early 2025, companies chose to cut staff to keep prices steady as tariff pressures mounted.

That trend shifted in the third quarter as industries started passing tariff costs directly to buyers.

According to the bank's analysis, this price-hiking strategy is key to recovering eroded profitability.

The analyst team predicts no new tariff policies from the US government ahead of the 2026 midterm elections.

Even so, core inflation is still expected to hit 3 percent early next year.

This job-saving strategy carries a huge risk if consumers can no longer stomach the high prices.

Morgan Stanley warns that market pushback would force companies to revert to cutting labor costs.

Reference:

• Business Insider, Morgan Stanley says tariff-fueled inflation could save the economy from layoffs. Accessed on December 26, 2025
• Featured Image: Shutterstock

Disclaimer

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