As we begin 2026, nonprofit leaders should be cautiously optimistic, even with emerging geopolitical concerns. Markets finished 2025 with resilience: major U.S. equity benchmarks reached near-record highs late in the year, driven by strong tech earnings, AI investment momentum, and broader corporate profitability, despite mixed economic signals.

Nonprofits should feel cautiously encouraged - capital markets are rewarding growth sectors, but underlying economic trends still present challenges in funding, costs, and planning.

Your role has never been more critical. As economic forces shift, strategic finance leadership can make the difference between thriving and merely surviving.

This report offers insights into GDP trends, inflation and monetary policy, market positioning, and practical implications for reserve management, investment policy, and donor engagement. 

While uncertainty persists, clarity and preparation give nonprofits a competitive advantage in serving communities and advancing mission impact. Recognizing both headwinds and tailwinds prepares you to lead with confidence. Embracing scenario planning, liquidity discipline, and diversified funding strategies will help your organization remain durable in an evolving economic context.

Economic Activity

Recent data indicate a robust finish to 2025, with the U.S. economy expanding near the fastest pace seen in two years during Q3, supported largely by consumer spending, according to preliminary Bureau of Economic Analysis figures.

Despite this, business investment has shown mixed results: durable goods orders fell in late 2025 while core business orders excluding defense and aircraft continued modest growth,  a sign that companies remain cautious.

Consumer confidence slipped for several months through the holiday season, indicating households may be more pessimistic about income prospects and employment than headline GDP suggests.

Jobless claims have remained historically low in early data, even as hiring activity softens - a mixed labor signal that reinforces a slower momentum narrative across sectors.

Taken together, the economy displays resilience in gross output and equity performance, yet underlying demand drivers may be weakening, particularly among middle-income households whose giving capacity nonprofits track closely.

Inflation & Interest Rates

Inflation has moderated compared with prior years, but remains above the Federal Reserve’s long-run target. According to the Fed’s December 2025 policy statement, inflation has “moved up since earlier in the year and remains somewhat elevated,” while job gains have slowed and unemployment edges upward. These are factors that complicate monetary decisions.

In response, the Fed cut interest rates again in December, bringing the federal funds target range to 3.50% – 3.75%. This was part of a broader easing cycle that began in late 2024 and continued through 2025 to help support weak labor trends and reinforce slowing inflation pressures.

Importantly, markets and major financial institutions now expect additional rate cuts through 2026, with some models projecting the Fed funds rate could drift toward the low-3% area by year-end.

For nonprofits, this evolving interest rate path affects both the cost of capital and yield expectations on reserve holdings.

Current Yields Environment (Early 2026)

Bond markets reflect this anticipated easing:

• Short-term rates (e.g., 3-month/2-year T-bills) are lower than a year ago, consistent with the Fed’s reduced policy rate.
• Intermediate yields have been relatively stable but exhibit downward pressure as expectations of further cuts price into the curve.
• Long-term Treasury yields remain moderate, above short yields, indicating a mildly steep yield curve as markets balance growth prospects against lower policy rates.

This yield curve shape supports a strategy that continues to balance liquidity preservation with opportunities to ladder fixed-income holdings for incremental income while rates are still attractive.

Market Conditions & Risks

Equity markets advanced through late 2025 and into early 2026, led by growth sectors like technology, where AI-related investment and robust earnings are expected to continue into the new year. Analysts project continued market gains in 2026, supported by rate cuts and strong corporate profits.

However, macro headwinds persist. Corporate bankruptcy filings surged in 2025, with filings up sharply (the highest since the post-Great Recession era)  pushed by inflation, high interest expense earlier in the tightening cycle, and tariff-linked cost pressures in industrial and import-dependent sectors.

These stress points signal uneven economic health: while headline growth is solid, debt servicing and cost structures remain strained for midsized and smaller firms. This is a cautionary sign nonprofits should factor into revenue forecasts and partnership risks.

Additionally, trade policy uncertainty continues to influence input costs and inflation expectations. Historical tariff expansions contributed to elevated price levels and skewed business planning throughout 2025, with some sectors bearing disproportionate burdens.

Forecasts for Q1 2026

Looking ahead, most forecasts suggest continued moderate expansion. A group of economists with a strong 2025 forecasting record projects that GDP growth in 2026 could accelerate to around 2.25%, with inflation edging down toward 2.6% and unemployment modestly improving.

The expectation of additional Fed rate cuts through 2026 should support borrowing costs and can enhance fixed-income returns for organizations with appropriate duration exposure.

That said, economic confidence, hiring data, and consumer sentiment will remain key indicators to watch. Early 2026 data may reveal whether the softening in labor trends persists and how businesses respond to further monetary accommodation.

Implications for Nonprofit Portfolios & Reserves

Operating Liquidity: As short-term interest rates continue to move lower, yields on operating cash and money market vehicles are expected to decline. Nonprofits should continue to anchor liquidity decisions to policy-driven needs, typically maintaining 6–12 months of operating coverage. To mitigate reinvestment risk as rates fall, organizations may consider short-term U.S. Treasury ladders or government-backed instruments, allowing them to lock in today’s still-attractive yields while preserving flexibility and capital safety.

Intermediate Reserves: For reserves with a slightly longer time horizon, high-quality, government-backed and investment-grade fixed-income strategies can play a stabilizing role as the rate environment shifts. With the Fed signaling additional easing, a modest extension of duration, within the guardrails of your Investment Policy Statement, may help preserve income and reduce reinvestment risk. Laddered structures remain a prudent approach, balancing near-term liquidity with the ability to benefit from current yield levels before they decline further.

Long-Term/Endowments: Longer-term funds should remain aligned with growth objectives and risk tolerance. Equity exposure continues to be essential for long-horizon capital appreciation, particularly in high-quality, resilient sectors with strong balance sheets and cash flows. On the fixed-income side, investment-grade and government-backed allocations provide ballast during periods of equity volatility. Inflation-protected securities may continue to play a role in diversified portfolios, especially if inflation proves more persistent than expected during the easing cycle.

Donor Engagement & Giving Vehicles: In an easing rate environment, emphasize tax-efficient giving options like appreciated stock gifts. Clear communication about how macro dynamics affect mission delivery,  and how gifts amplify impact, will be critical. Market stability combined with easing monetary policy can create favorable conditions for asset-based giving. Clear, confident communication about how financial stewardship supports mission continuity, and how donors can give more impactfully through non-cash assets, remains a powerful engagement tool.

Strategic Recommendations

1. Reaffirm Tiered Policies: Match operating cash to near-term needs, optimize reserve returns within risk tolerances, and align endowment allocations to long-term goals.
2. Watch Curve Dynamics: Selective duration management can enhance returns without adding excessive risk.
3. Stress Test Assumptions: Model scenarios under slower growth, slower hiring, and further rate cuts.
4. Diversify Revenue: Anticipate funding variances tied to donor confidence and economic slowdowns; explore new giving channels early.
5. Monitor Key Indicators: Labor data, inflation reports, and Fed communications will be especially informative in the first half of 2026.

We can help you with all of these. Infinite Giving remains committed to guiding nonprofits through these complex times, helping them adapt strategies, optimize resources, and continue delivering transformative impact.

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Sources

• U.S. Treasury: Daily Treasury Par Yield Curve Rates‍
• Vito Report – Last Week in Review (Dec 28, 2025): U.S. GDP growth and markets‍
• Fed Policy & Rates: Reuters & Bankrate on rate cuts (Dec 2025)‍
• Market Outlook (Investopedia): Vanguard economists & 2026 forecasts‍
• Equity & Market Trends: Reuters & Kiplinger (Dec 2025)‍
• Corporate Stress Signals: NY Post & Washington Post on bankruptcies‍
• Tariff Impacts: Wikipedia & OECD context on tariff effects
• Black Rock: iShares | Fed Outlook 2026: Rate Forecasts and Fixed Income Strategies