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The U.S. trade deficit with China, Canada and several other trading partners fell in 2025, but the total figure was little changed.

Kent Nishimura / Bloomberg / Getty Images

Key Takeaways

• President Donald Trump’s tariff policies did little to shrink the overall 2025 trade deficit.
• However, deficits did fall with several major U.S. trading partners including Canada, Japan and South Korea, while the imbalance with China hit its lowest levels in nearly two decades.
• U.S. deficits with Taiwan, Vietnam and Mexico surged higher.
• On Friday morning, the U.S. Supreme Court ruled that most of the tariffs were illegal.

President Donald Trump's tariffs helped lower the trade deficit with several major U.S. trading partners. But the total U.S. trade deficit for 2025 slipped by just 0.2%. The data was released just a day before the Supreme Court struck down most of his tariffs.

The U.S. narrowed its trade deficit in goods with China by more than 30% and drove down the trade imbalance with Canada, South Korea, Japan and Switzerland, according to new Bureau of Economic Analysis data. All are nations that have faced tariff threats from President Donald Trump, prompting some to strike trade deals with the U.S.

“It's ultimately pretty clear that tariffs weighed on imports,” wrote Wells Fargo economists Shannon Grein and Tim Quinlan.

Why This Matters to You

Tariffs can shift where the U.S. buys goods from, but the 2025 data shows they don’t automatically shrink the overall trade deficit, especially when strong consumer and business demand keeps imports high. Trade flows can influence corporate profits, supply chains, inflation trends, currency values, and sectors like technology that are driving growth through heavy AI-related spending.

But the tariffs had a limited overall impact, reducing the trade deficit by just $2.1 billion in 2025. That’s because the overall number of imported goods increased by more than 4%, led by increasing high-tech imports amid a surge of U.S. business spending on artificial intelligence (AI). 

Goods Trade Deficit Falls for Several U.S. Trading Partners in 2025 Country2025 Trade Deficit in Goods2024 Trade Deficit in GoodsPercent ChangeChina$202.1 billion$295.5 billion32%Germany$73 billion$84.6 billion14%Japan$63.8 billion$69.4 billion 8%South Korea$56.4 billion$65.9 billion14%Canada$46.4 billion$61.9 billion25%Switzerland$34.3 billion$38.3 billion10%Italy$30.7 billion$44 billion30%Austria$12.2 billion$13.1 billion7%Israel$6.7 billion$7.4 billion9%

“Trade took a roller coaster ride in 2025 as tariffs jolted flows, mostly on the import side of the ledger. But after all the tariff headlines and swings in the data, the trade deficit barely budged in 2025,” wrote Nationwide Financial Market Economist Oren Klachkin.

Tariff Threats Send China Trade Deficit to Lowest Levels in Nearly Two Decades

The U.S. narrowed its trade deficit with China by $93.4 billion last year, sending the imbalance to its lowest levels since 2006. But even then, it still ran a deficit of $202 billion with China.

The decline comes after Trump threatened tariffs of more than 100% on China before lowering them after negotiations between the two trading partners, which brought total tariff levels on U.S. trade with China to around 30%, a review by Oxford Economics showed.

The U.S. improved its trade deficit in goods with Canada by $15.5 billion, a 25% drop from 2024 levels, after it enacted additional tariffs on its North American neighbor. The U.S. trade deficit in goods with South Korea was lower by 14% and its deficit with Switzerland was down by 10%, the data showed.

The U.S. also narrowed its trade deficit with Europe, shrinking its trade imbalance with Italy by nearly 30%, and also reduced the imbalance with Germany and Austria. The U.S. also widened its trade surplus with Belgium and the Netherlands. However, its trade deficit with Ireland jumped by nearly 30%, and the trade imbalance with France also got larger. 

Trade Deficit with Taiwan, Vietnam Jump as AI Imports Surge

However, the reduced deficits with China, Europe and Canada were mostly offset by increased trade deficits in goods with other partners. The deficit with Taiwan almost doubled to $146.7 billion, while the trade imbalance with Vietnam jumped to $178.1 billion, nearly matching the U.S. trade deficit with China. Likewise, the trade deficit with Mexico surged by almost 15% in 2025 to hit $196.9 billion. 

The increasing deficits with Taiwan and Vietnam are a result of tariff exemptions on semiconductors and electronic products, such as smartphones and computers, noted BMO Senior Economist Sal Guatieri.

Some of that increase is tied to a surge in high-tech imports as businesses invest in AI, with computer imports jumping by 87% and computer accessory imports increasing by 42%. Meanwhile, imports of finished metal shapes more than doubled in 2025, while nonmonetary gold imports were up by 86% amid a surge in the value of the yellow metal.

Trump's import taxes have reshaped trade patterns, slowed global economic growth, dragged down the U.S. job market, and put upward pressure on inflation.

Brendan Smialowski / AFP via Getty Images

Key Takeaways

• Most of the tariffs President Donald Trump imposed in 2025 were illegal, the Supreme Court ruled Friday.
• Trump has vowed to reimpose the import taxes under other laws if he were defeated in the Supreme Court.
• The economic impact of the ruling could be limited if the administration swiftly replaces the tariffs.

President Donald Trump's signature economic policy was illegal.

That's according to the Supreme Court, which ruled Wednesday against the sweeping tariffs Trump imposed on most U.S. trading partners in 2025 using his emergency powers. In a 6-3 ruling, the high court determined Trump exceeded his authority as president when he imposed the import taxes.

The ruling overturns all of the tariffs Trump imposed under the International Emergency Economic Powers Act (IEEPA) of 1977. That represents about 75% of all the tariffs Trump imposed last year, according to an analysis by UBS, including the "reciprocal" tariffs he placed on imports from most countries in the world.

The ruling leaves in place tariffs on specific items such as automobiles and steel, which were imposed under a different authority, section 232 of the Trade Expansion Act of 1962.

"The President enjoys no inherent authority to impose tariffs during peacetime," the ruling said. "It instead relies exclusively on IEEPA to defend the challenged tariffs."

Hours after the ruling, Trump said he was imposing a 10% global tariff under a different authority and that his administration was working on imposing additional tariffs using other authorities. The new tariff, under Section 122 of the Trade Act of 1974, which expires after 150 days.

The ruling imposes new restraints on Trump's ability to slap tariffs on specific countries at the drop of a hat

"Against that backdrop of clear and limited delegations, the Government reads IEEPA to give the President power to unilaterally impose unbounded tariffs and change them at will," Chief Justice John Roberts wrote in the majority opinion. "That view would represent a transformative expansion of the President’s authority over tariff policy."

Indeed, Trump has imposed tariffs at will, at one point raising tariffs on Canada by 10% because he was angered by an anti-tariff TV commercial that aired there.

What This Means For The Economy

The economic impact of the ruling could be small if Trump restores the original tariff levels. If tariff levels ultimately fall, inflation would be lower, analysts say.

Trump Could Impose New Tariffs

The court sided with Learning Resources Inc., which manufactures educational materials, and sued the administration last year, arguing that IEEPA does not give Trump the authority to impose tariffs at will.

Trump vowed to impose new tariffs to replace the ones that were overturned.

"Other alternatives will now be used to replace the ones that the court incorrectly rejected," Trump said in a press conference after the ruling, saying the new ones would bring in "even more money."

The ruling once again throws U.S. trade policy into uncertainty.

It was unclear how soon Trump would impose new tariffs, or whether they would be as high as the old ones.

The Next Legal Battle: Tariff Refunds

The ruling does not order the government to refund tariffs already paid, but opens the door for other lawsuits that could result in refunds, Alan B. Morrison, associate dean for public interest and public service at George Washington University Law School, wrote in a commentary. The process could be chaotic, Justice Brett Kavanaugh wrote in a dissenting opinion.

"The United States may be required to refund billions of dollars to importers who paid the IEEPA tariffs, even though some importers may have already passed on costs to consumers or others," he wrote. "As was acknowledged at oral argument, the refund process is likely to be a 'mess.'"

The tariffs are intended to rebalance global trade in favor of the U.S. and boost American manufacturing and jobs in that sector, among other goals.

Trump's import taxes have had a significant impact on the U.S. and world economies, reshaping trade patterns, slowing global economic growth, dragging down the U.S. job market, and putting upward pressure on inflation. They've also affected household finances as importers have passed costs along to consumers, costing the typical household $1,681 a year, according to an analysis by the Yale Budget Lab.

At the same time, the $216 billion in revenue that the tariffs generated in fiscal 2025 helped reduce the U.S. government's spending deficit. The U.S. closed out fiscal 2025 with a deficit of $1.78 trillion, down from $1.84 trillion in 2024. Removing the tariffs leaves a significant gap in the budget.

"With today’s Supreme Court ruling affirming the illegality of President Trump’s emergency tariffs, the country will now be about $2 trillion deeper in the hole," Maya MacGuineas, president of the Committee for a Responsible Federal Budget watchdog group, said in a statement. "With the national debt already the size of the entire U.S. economy and interest on the debt costing more than $1 trillion this year, this is very bad news."

Economic Impact Unclear

Ahead of the ruling, analysts speculated about what a defeat for Trump would mean for the economy. In the end, the tariffs could return in a different form, leaving those economic forces in full effect. For example, Section 232 of the Trade Expansion Act allows the president to impose tariffs on certain products after a Department of Commerce investigation, while Section 301 allows tariffs on a country found to be engaging in unfair trade practices.

"We have maintained that the ongoing case at the Supreme Court doesn't change our expectations for US trade policy, as the president can leverage a range of other authorities—both temporary and longer-lasting—to effectively replace or quickly re-impose the current tariff levels," Ariana Salvatore and Bradley Tian, strategists at Morgan Stanley, wrote in a commentary last month.

Some economists said the ruling could breathe some life into the economy, especially for small businesses that have been hit hardest by the import taxes.

"The Supreme Court’s decision to overturn the tariffs is a gift to the economy," Heather Long, chief economist at Navy Federal Credit Union, said in a commentary. "It will force a reset in tariff policy that is likely to lead to lower overall tariff rates and a more orderly imposition of future tariffs. This will boost economic growth and provide some relief for American consumers. Smaller firms will be especially helped by this ruling. They don’t have supply chain managers to help source their goods or lobby for exclusions, so tariffs have hit smaller firms especially hard.”

Last month, Trump said there would be a "complete mess" if the court ruled against his tariffs, citing lost revenue and the possible requirement to pay billions in tariff refunds. Should the court strike the tariffs down, "we're screwed!" he wrote in all-caps in a post on his Truth Social platform.

It's also possible the White House could take the opportunity to reduce tariffs somewhat, which would lower inflation at a time when Trump's Democratic political opponents are emphasizing voters' cost-of-living concerns.

"We do think there's scope for the administration to take a lighter-touch approach to the overall tariff regime, given a recent political focus on affordability," Salvatore and Tian wrote.

The justices were split on their reasoning, with conservatives Chief Justice John Roberts, Neil Gorsuch, and Amy Coney Barrett signing the majority opinion. Liberals Sonya Sotomayor, Ketanji Brown Jackson and Elena Kagan voted with the majority but disagreed with some of the legal reasoning behind it, specifically, its application of the "major questions" doctrine of legal interpretation, which holds that Congress cannot give the executive branch powers with major significance without explicitly stating what those powers are. Conservatives Clarence Thomas, Brett Kavanaugh and Samuel Alito dissented.

Update, Feb. 20, 2026—This story has been updated after publication to include additional detail and reaction from experts. The story was originally published Feb. 20, 2026.

Persistently high inflation has squeezed consumer budgets in recent years.

Joe Raedle / Getty Images

Key Takeaways

• The Personal Consumption Expenditures price index rose 2.9% over the year in December, exceeding forecaster expectations and hitting their highest level since March 2024.
• Core PCE, which excludes volatile food and energy costs, rose 3%, the highest level since last February.
• The report is another indication that the Federal Reserve's efforts to push inflation down to a 2% annual rate have a long way to go, and could put pressure on the Fed to keep interest rates high.

After a turbulent year, the Federal Reserve's favorite measure of inflation ended 2025 higher than where it began.

Consumer prices as measured by Personal Consumption Expenditures rose 2.9% over 12 months in December, up from a 2.8% annual increase in November and reaching the highest since March 2024, the Bureau of Economic Analysis said Friday. That was higher than the 2.8% annual inflation rate forecasters had expected according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. "Core" prices excluding the volatile food and energy categories rose 3% over 12 months, the highest annual increase since February and in line with expectations.

What This Means For The Economy

Stubbornly high inflation squeezes household budgets and makes the Federal Reserve more reluctant to cut borrowing costs to stimulate the economy.

The uptick of core prices is especially noteworthy because it's the benchmark used by officials at the Federal Reserve to determine if inflation is running at the Fed's target of a 2% annual rate. That hasn't been the case since 2021, when the pandemic disrupted supply chains and caused a surge of price hikes.

By the start of 2025 inflation was on the downswing, but began rising again in April after President Donald Trump's "Liberation Day" announcement of sweeping tariffs on U.S. trading partners. Merchants have passed along tariffs to customers, pushing up prices for many products. However, overall inflation hasn't risen severely partly because housing costs have leveled off.

Stubbornly high inflation has implications for the Fed's key interest rate as the central bank attempts to balance its dual mandate of keeping inflation in check and employment high. If inflation fails to decelerate in the coming months, it could prompt the Fed to keep the fed funds rate higher for longer, keeping upward pressure on borrowing costs for loans in hopes of discouraging borrowing and allowing supply and demand to rebalance.

The fed funds rate influences borrowing costs for all kinds of loans. Fed officials kept the rate steady in January after cutting it by a quarter-point at each of its three previous meetings to boost the faltering hiring market.

"This will trigger more concern inside the Fed that inflation needs a closer look again," Heather Long, chief economist at Navy Federal Credit Union, wrote in a commentary.

The report was supposed to be released in January but was delayed by the government shutdown in October and November.

The PCE numbers came on the same day the government released fourth-quarter GDP data that showed economic growth was weaker than anticipated in the fourth quarter.

News of the day for Feb. 20, 2026

Major stock indexes declined on Thursday, ending three-day winning streaks for the Dow and S&P 500.

Angela Weiss / AFP / Getty Images

Stock futures are holding steady this morning as investors await new economic data to cap the holiday-shortened trading week; the fourth-quarter report on gross domestic product and the Federal Reserve's preferred measure of inflation are due out this morning; concerns about the private credit market are rising after Blue Owl Capital said it has liquidated $1.4 billion in assets to pay out investors who are looking to exit some of its funds; Opendoor stock is soaring after the online real estate platform reported better-than-expected results; and Applovin shares are rising amid reports the mobile ad technology firm is looking to build its own social media network. Here's what you need to know today.

Stock Futures Little Changed Ahead of Economic Data

Stock futures are little changed as investors await key data on economic growth and inflation. (more on that below) Futures tied to the Dow Jones Industrial Average, S&P 500 and Nasdaq were each down 0.1% recently. The major indexes lost ground on Thursday, snapping three-day winning streaks for the Dow and S&P 500. Crude oil futures were down 0.5%, still trading above $66 barrel after the commodity hit its highest price in six months yesterday amid reports of the U.S. moving military assets to the Middle East as it negotiates with Iran over the country's nuclear program. Gold futures were up nearly 1% at around $5,040 an ounce, while the 10-year Treasury yield, which influences a host of consumer borrowing costs such as mortgage rates, slipped to 4.06% from yesterday's close of 4.08%. Bitcoin was little changed at around $68,000.

GDP and Inflation Data Set for Release This Morning

Investors will get a new set of economic data to assess this morning, with gross domestic product (GDP) figures and Personal Consumption Expenditures inflation data scheduled to be released at 8:30 a.m. ET. GDP is projected to come in at 2.5% for the fourth quarter, down from 4.4% in the third quarter as the economy felt the impact of the record government shutdown that lasted through parts of October and November. PCE inflation is projected to show prices were up 2.8% in December compared to a year ago, the same as it was in November, while "core" PCE, which excludes the more volatile prices of energy and food, is expected to tick higher to 3.0% from 2.8% in November. Each figure is still well above the Federal Reserve's stated goal of 2% inflation.

Blue Owl Sparks Concerns About Private Credit Market

The private credit market received a warning sign on Thursday after Blue Owl Capital (OWL) said it has liquidated $1.4 billion in assets to pay out investors who are looking to exit some of its private credit funds. Through the funds, Blue Owl and other private credit firms make loans to businesses that may have trouble finding loans elsewhere, and receive high interest rates in return, allowing them to pay out dividends to the funds' investors. The growing number of retail investors in private credit funds is increasing the rate of investors looking to cash out of the funds, as retail investors are proving to be more risk-averse than wealthy investors who have invested in private credit previously, according to The Wall Street Journal. Experts including JPMorgan Chase (JPM) CEO Jamie Dimon have previously questioned the industry's stability, and said the growing private credit market could eventually fall apart.  Blue Owl shares were down 3% in recent premarket trading after sinking 6% on Thursday.

Opendoor Stock Surges on Strong Earnings

Opendoor Technologies (OPEN) stock jumped after the online real estate platform's fourth-quarter revenue came in well above expectations. The company posted revenue of $736 million, along with a smaller adjusted loss than analysts had forecast. Opendoor said it increased its number of home purchases by 46% compared to the third quarter, and said the average number of days a home is in the company's possession fell by 23%. The company said first-quarter revenue is expected to decline by about 10% from the fourth quarter, but said it still plans to be posting adjusted profits by the end of this year. Opendoor shares were up 18% ahead of the opening bell.

Applovin Shares Pop on Plans to Start Own Social Media Network

Applovin Corp. (APP) shares are gaining ground Friday amid reports that the mobile ad tech company is looking to build its own social media network. The company was one of many bidders for TikTok's U.S. operations last year, and now the company has a job posting for a software engineer to "architect the digital backbone of our next-generation social platform." An executive also recently appeared on a Chinese-language podcast discussing the plans, per Bloomberg. The executive reportedly said that, unlike Meta Platforms (META), which built a social network in Facebook before having a method to monetize it, Applovin already has the monetization technology, it just needs its own platform. Applovin shares were up more than 4% recently.

Federal Reserve Bank of Minneapolis President Neel Kashkari is the latest central bank official to disagree with White House officials.

Elizabeth Flores / The Minnesota Star Tribune via Getty Images

Key Takeaways

• Research from the New York Fed shows Americans, not foreigners, are bearing the cost of tariffs.
• The Trump administration criticized the study, calling it partisan and questioning its methodology.
• The conflict highlights ongoing tensions over the Federal Reserve's independence from political influence.

The latest battleground in the feud between the White House and the Federal Reserve system is a routine economics paper.

Researchers at the New York Fed published findings last week showing that Americans are paying the cost of President Donald Trump's tariffs, contrary to Trump's claims that foreigners are footing the bill.

Administration officials have said in the days since that those researchers should be punished and that the findings were partisan. One Fed official has responded, defending the research and the Fed's independence.

What This Means For The Economy

Economists consider the independence of the Federal Reserve crucial to its credibility and hence its ability to use monetary policy to control inflation. If the Fed loses its independence, the risk of runaway inflation increases, experts say.

"The people associated with this paper should presumably be disciplined," Kevin Hassett, director of the National Economic Council, said in an interview on CNBC Wednesday. "They've put out a conclusion which has created a lot of news that's highly partisan based on an analysis that wouldn't be accepted in a first-semester econ class."

One Fed official responded to Hassett's comments, calling them another attack on the central bank's autonomy.

"This is just another step to try to compromise the Fed's independence," Kashkari said at a Q&A event in North Dakota Thursday morning. "Over the last year, we've seen multiple attempts to try to compromise the Fed's independence, including in December, when the Department of Justice served a subpoena to the Board of Governors over some building expenses."

The back-and-forth over the research is the latest in a larger conflict between the White House and the Fed.

Since his second inauguration, Trump has pushed for steeper rate cuts and threatened to fire members of the central bank's policy-setting committee. Fed officials like Kashkari have said this is an attempt to undermine the Fed, which was set up by Congress to be independent from the White House.

The administration rebutted Kashkari's remarks Thursday afternoon. Pierre Yared, acting chair of the Council of Economic Advisors, redoubled the criticism of the study.

"Looking at comments over specific studies and claiming that this is an attack on Fed independence is a little bit hyperbolic," he said in an interview on Bloomberg Television.

The New York Fed's findings were in line with those of other economists studying the issue, including forecasters at the nonpartisan Congressional Budget Office. All 12 Federal Reserve banks have research departments that routinely publish economic analyses, often examining public policy but rarely sparking controversy.

The stakes of the conflict are high because the Fed is tasked with using monetary policy to keep inflation under control and employment at a maximum. Experts say the Fed's credibility hinges on the public's perception that it is acting independently of political pressure.

Take A Number: A Striking Figure From Today's Economic News

Investopedia / Elizabeth Guevara

Key Takeaways

• There are 6.1 million workers in occupations highly exposed to AI and with low ability to find a new job, according to new research.
• Customer service representatives are among the most at-risk careers with the lowest ability to adapt.
• Careers least likely to be disrupted by AI include janitors and roofers.

How likely is it that AI will take your job, and if so, how ready are you to switch careers? For 6.1 million workers, the risk of AI disruption is high and the ability to find a new job is low.

That's according to a paper by researchers at the Brookings Institution who measured occupations by how vulnerable they are to AI disruption and how capable the affected workers would be at finding new employment.

For example, software developers have high exposure to AI and high adaptability, whereas customer service representatives get the short end of the stick in both categories. Dentists have little to fear from AI and high ability to adapt, while janitors are not very adaptable but also not very likely to have their jobs automated. Interpreters and translators were the most likely to have their jobs automated, according to the study.

What This Means For The Economy

The Brookings study identifies professions at greatest risk of AI-related job losses, giving individuals and policymakers an idea of which employees may need the most help transitioning to new careers.

The 6.1 million people in the high-risk, low-adaptability quadrant of the chart are a significant chunk of the workforce, comparable to the 7.3 million people who are already unemployed.

"These workers tend to be concentrated in clerical and administrative roles, and about 86% are women," the researchers, led by senior research fellow Sam Manning, wrote in a blog post about their findings. "The combination of employment size, potentially elevated automation impacts, and precarious worker traits highlights occupations where policymakers may benefit from greater visibility into AI’s workforce effects."

With Thursday's move, Deere shares have gained more than 40% since the start of the year

Tayfun Coskun / Anadolu / Getty Images

Key Takeaways

• Deere shares jumped to a fresh high Thursday after the tractor maker posted earnings that topped analysts' estimates.
• Executives said its results got a boost from infrastructure spending and investments in building AI data centers.

Deere's stock is building on its winning streak.

Shares of Deere & Co. (DE) jumped nearly 12% to a fresh high Thursday, extending their recent record-setting rally, after the farm and construction equipment maker posted earnings that exceeded expectations.

Deere reported earnings per share of $2.42 on revenue that rose 13% year-over-year to $9.61 billion in its fiscal first quarter. Both figures topped analysts' projections compiled by Visible Alpha.

Deere's Manager of Investor Communications Chris Seibert said in Thursday's earnings call that infrastructure spending by the Trump administration and data center construction projects helped bolster its results, according to a transcript provided by AlphaSense.

Why This Matters to Investors

Deere shares have rallied this year amid optimism about a rebound in the company's construction and small ‌agriculture businesses, along with a boost from AI infrastructure spending.

"While the global large agriculture industry continues to experience challenges, we're encouraged by the ongoing recovery in demand within both the construction and small agriculture segments," CEO John May said in a statement.

Those positive demand trends have the company expecting this year could be "the bottom of the current cycle" May said, leaving Deere poised for stronger sales growth in 2027 and beyond.

Looking ahead, Deere said it expects net income of $4.5 billion and $5 billion for the full year, up from the previous range of $4 billion to $4.75 billion, and above the $4.43 billion analysts were looking for.

The company said sales from its Production & Precision Agriculture segment are seen falling 5% to 10%, while small agriculture and construction sales are projected to rise about 15%.

With Thursday's move, Deere shares have gained more than 40% since the start of the year.

The Centers for Medicare and Medicaid Services, run by Mehmet Oz (right), introduced a new AI system to approve or deny claims.

Aaron Schwartz / CNP / Bloomberg via Getty Images

KEY TAKEAWAYS

• The Centers for Medicare and Medicaid has launched a trial program in six states that uses AI to inform claims decision-making.
• Claims that need prior authorization will go through AI first. Claims for emergency inpatient-only services and emergency services will not be processed by AI.
• CMS says the updated technology will decrease waste and speed the prior-authorization process. Some experts and lawmakers are worried it will deny claims for services that should be covered by Medicare.

Your next Medicare claim could be approved or rejected by AI.

Last month, the Centers for Medicare and Medicaid Services (CMS) introduced a new system that will use AI and machine learning to approve or deny some Medicare claims. The temporary cost-cutting program, called the Wasteful and Inappropriate Service Reduction, or the WISeR Model, will run through the end of 2031 and operate in six states: Texas, New Jersey, Oklahoma, Ohio, Washington and Arizona.

Typically, a hospital or doctor will submit requests to Medicare for prior authorization. Non-emergency health care generally requires prior authorization, which allows the provider and patient to know whether the service will be covered by Medicare. It is generally required for services like a planned surgery, an MRI scan, or services and medicines with side effects or a higher potential to harm the patient.

CMS said pre-authorization claims submitted through the WISeR Model will be denied if the medical service provides little to no clinical benefit or has a "higher risk of waste, fraud, and abuse." For example, skin and tissue substitutes, electrical nerve stimulator implants, and knee arthroscopy for knee osteoarthritis are usually rejected as they are more likely to waste Medicare finances and can cause physical harm to the patient.

"AI could help Medicare process prior authorizations and claims more quickly and consistently, reducing delays and administrative burdens for beneficiaries and aiding in the fight against fraud and waste," Shannon Benton, the executive director of The Senior Citizens League, said in an email. "However, risks are significant, as automated systems might wrongly deny or delay necessary care, especially in complex cases."

Why This Matters

If using AI reduces unnecessary care, it could save Medicare millions of dollars and ease pressure on the federal budget, with positive implications for federal deficits, taxes, and interest rates. But if the system increases denials or disputes, it could shift costs onto seniors, who are generally on fixed incomes in retirement.

Who Is Impacted and Who Isn't

Most Medicare prior authorization claims will go through the WISeR program if the beneficiary lives in a state that's using it.

This program does not change what is and isn't covered for Medicare beneficiaries, and claims for inpatient-only services and emergency services will not go through the WISeR Model, the CMS said.

The new model also applies only to beneficiaries with Original Medicare. The roughly 54% of beneficiaries with coverage through a Medicare Advantage plan will not be affected. Some Medicare Advantage insurers have already started using AI to assist with claims decisions, but lawmakers argue that this has contributed to the mismanagement of the process.

The Risks of the WISeR Model

CMS says implementing the WISeR model will help expedite claims decisions and save the agency money by preventing unnecessary or harmful claims. It adds that any claims that are denied by AI will be reviewed by a qualified clinician before a final decision is issued.

"Any use of AI would be subject to strict oversight to ensure transparency, accountability, and alignment with Medicare rules and patient protection," a CMS spokesperson said in an email. "CMS remains committed to ensuring that automated tools support, not replace, clinically sound decision-making."

The spokesperson added that CMS will monitor the timeliness and accuracy of prior-authorization review decisions.

Objections to the Use of AI by Medical Professionals

Lawmakers, experts and beneficiaries, however, are wary of the new model. Medicare is one of the last types of health insurance in the country to bring AI into the claims decision process. Many private insurers are already using AI.

Last year, about three in five physicians surveyed by the American Medical Association were concerned that AI will "increasingly override good medical judgment" and hurt patients by increasing claim denials.

After plans to introduce the WISeR model were announced last year, a group of House lawmakers wrote to CMS requesting that the program be canceled, as it will likely limit access to necessary health care and create incentives to "put profit over patients," the letter said.

Medicare's prior authorization decisions are typically outsourced to a company that uses technology, such as AI, to recommend whether a claim should be approved or denied. And the agency confirms that companies that use the WISeR model will "receive a percentage of the expenditures associated with averted wasteful, inappropriate care as a result of their reviews."

In a recent poll of Medicare beneficiaries by The Senior Citizens League, 53% opposed "combining AI with human review for timely Medicare payments," Benton told Investopedia.

"Beneficiaries need transparency, clear explanations for denials, and strong appeal rights when AI is involved," Benton said in an email. "The [WISeR model] could create additional barriers to care, particularly for seniors with serious or chronic conditions. Any AI use must include safeguards and human oversight to ensure access to needed treatment."

No matter how a claim is denied, a health care provider or beneficiary can still appeal if they believe it was in error. After a claim is processed, beneficiaries will receive a Medicare Summary Notice by mail or electronically. The notice will inform them whether their claim was denied or approved and how to appeal the decision.

New technologies like autonomous taxis may but hurting the labor market.

Patrick T. Fallon / AFP via Getty Images

Key Takeaways

• The U.S. economy is growing at a healthy pace, but job growth is lagging behind.
• AI technology may be contributing to the job slump by automating tasks that would otherwise be given to entry-level hires.
• A wave of AI job losses is one of the risks that could trigger the next recession, according to economists at Moody's Analytics.

By many measures, the U.S. economy is doing well, with the gross domestic product growing steadily and stock indexes routinely hitting record highs. But one thing is missing from the economic expansion: the jobs.

Forecasters expect that the economy grew at a healthy 2.5% inflation-adjusted annual rate in the fourth quarter despite being dragged down by a lengthy government shutdown. Typically, economic expansion creates demand for many new positions, but that didn't happen in 2025, which was the worst year for job creation outside a recession in more than two decades.

The economy is growing as companies build data centers at a breakneck pace and pour billions into an AI arms race. Optimists about the new technology have compared the frenzy to the railroad boom of the industrial age or the telecommunications explosion in the late 20th century. However, the modern-day equivalents of railroad workers or information sector jobs are nowhere to be seen in employment statistics.

"If you’re grading the economy based on real GDP, it looks pretty good; if grading based on jobs, not so much," Brian Wesbury, chief economist at First Trust, noted in a commentary.

What This Means For The Economy

The disconnect between economic growth and job gains is worrying economists. If businesses are boosting productivity through AI and automation rather than hiring, that will hurt not just jobs but also consumer spending and ultimately the broader economy.

"Over the past year, the economy has been characterized by a breakdown in a typically strong economic relationship," said Matthew Luzzetti, chief economist at Deutsche Bank. "During the pre-Covid period, changes in the hiring rate were significantly positively correlated with growth in economic activity."

Not anymore. Not only was job growth slow last year, but it was heavily concentrated in the health care sector, which is relatively immune to the ups and downs of the business cycle.

Is A Health Care-Powered Job Market Sustainable?

"Excluding health care, job growth in recent years has essentially been flat," Matt Colyar, an economist at Moody's Analytics, said in a commentary.

"As the rest of the economy has slowed, health care has provided a lifeline. However, health care is hardly a dynamic industry; productivity growth is slow, and critiques that it has become bloated are well-founded," Colyar wrote. "In 1990, there were 28 people in the U.S. for every health care worker. By early 2025, that number had fallen to nearly 14."

Outside of health care, employers have mostly avoided mass layoffs, but it's difficult for those outside the workforce to find a job. Job openings plunged in December, and among the unemployed, 25% were out of work for six months or more in January. Historically, that level of long-term unemployment only happened in the wake of recessions.

"We see little reason to think job creation at newly formed businesses is running at very high levels," Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, wrote in a commentary.

With so little help wanted by businesses, it's no wonder that consumers are telling pollsters they're growing more pessimistic about the job market even as overall unemployment remains historically low. For example, the percentage of people who said jobs are hard to get rose to a post-pandemic high of 21% in January's Consumer Confidence survey from the Conference Board.

Why Jobs Are Scarce

Economists have several explanations for the phenomenon.

One possible reason for the job slump is the tariffs that President Donald Trump imposed over the last year, which made employers uncertain about trade policy and caused businesses to delay expansion and hiring plans.

Another is the crackdown on immigration, which has reduced population growth and therefore both the demand for jobs and the pool of available workers.

A third hypothesis is that the work is going to the same place as the investment dollars: AI. There's some evidence that companies are using AI software to automate some of the work they otherwise would have hired early-career workers to do. Entry-level workers in AI-exposed industries were 16% more likely to be unemployed than their counterparts in other fields, a Stanford study published in November found.

That could be why the unemployment rate for recent college graduates ticked up to 5.6% in December, higher than the overall unemployment rate of 4.2% that month. Usually, recent college grads are less likely to be unemployed than the general population.

"Junior positions often involve tasks that can be automated, and the time it takes a new employee to get up and running is costly," Moody's economists Colyar and Elise Burton wrote in a commentary. "In a tight labor market, firms are willing to make those investments because they need to fill open positions. In a frozen labor market where firms are neither hiring nor letting anyone go, they may be more likely to test-run AI adoption as a substitute for these positions." 

If this is the beginning of a trend, it threatens the broader economy. A wave of AI-related job losses is one of the risks Moody's identified as a possible cause of the next recession.

"In the labor market, mass adoption of artificial intelligence could dramatically shrink firms’ staffing needs," Moody's economists wrote. "As the economy recalibrates, unemployment and societal tension would run worryingly high."

Palantir shares are down nearly 35% from their November highs

Laurent Hou / Hans Lucas / AFP / Getty Images

Key Takeaways

• Mizuho upgraded Palantir's stock to "outperform" from a neutral rating, suggesting the stock's recent slide could be an opportunity for investors to buy the shares at a discount.
• Wall Street analysts harbor some concerns that the stock could be overvalued after a strong run last year, though the average price target is still upbeat.

Palantir shares have slumped lately. Does that make them a deal?

Shares of Palantir (PLTR) were down about 1% in late Thursday trading. That leaves them down about 35% from their November highs amid a broader pullback in software stocks and some worries Palantir's valuation may have eclipsed its fundamentals. The stock popped earlier this month after turning in Street-beating earnings, but that didn't stop the slide.

But that pullback may be overdone, analysts at Mizuho suggested in a note to clients, saying now could be a good time to pick up Palantir shares.

Why This Matters to Investors

Palantir's stock has had a tough start to 2026, amid some worries its strong run last year left it overvalued.

Mizuho on Wednesday upgraded Palantir's stock to "outperform" from a neutral rating, setting a $195 price target that is 44% above Wednesday's close.

The analysts pointed to strong AI demand trends and growth in the company's commercial business. Palantir "is in a category of one, delivering total revenue growth, acceleration, and margin expansion at scale that is unlike anything else in software," they wrote.

Of the eight analysts with current ratings tracked by Visible Alpha, only half consider the stock a "buy," while half hold neutral ratings. (Michael Burry, meanwhile, has recently come out as a Palantir bear.) But the Street's mean target is higher than Mizuho's: The average just above $207 would suggest a return to the stock's November high.

Read Investopedia's full coverage of Thursday's trading here.