News of the week summary - 22/02/2026
The Supreme Court strikes down IEEPA tariffs
On Friday, the Supreme Court issued its ruling in Learning Resources, Inc. v. Trump, holding by a 6-3 majority that the International Emergency Economic Powers Act does not authorise the president to impose tariffs. Chief Justice Roberts wrote for the majority, joined by five other justices; three dissented. The decision invalidated the full suite of tariffs the administration had imposed under IEEPA, including the global reciprocal tariffs announced in April 2025 and the tariffs linked to border enforcement. The government had collected an estimated $130 to $160 billion in IEEPA-based duties from US importers since those programmes began.
The constitutional logic was that tariffs are a form of taxation, and Article I of the Constitution reserves the power to tax to Congress. IEEPA authorises the president to "regulate importation" during a declared national emergency, but the Court found that "regulate" does not encompass the power to impose revenue-raising duties. The decision left intact the existing Section 232 tariffs on steel, aluminium, autos and heavy trucks, which rest on separate statutory authority that Congress explicitly delegated with clear limits.
The ruling created immediate uncertainty for importers. The Court did not address whether businesses are entitled to refunds on duties already paid; that question was sent back to the Court of International Trade for further proceedings. With an estimated $130 billion in payments from unliquidated entries potentially eligible for refund, the downstream process is expected to be complex and protracted. Companies that have paid IEEPA tariffs face a waiting period of indeterminate length while the courts and customs authorities work out the mechanics.
Within hours of the decision, the administration responded by announcing a new 10 percent global tariff under Section 122 of the Trade Act of 1974, effective February 24. Section 122 allows the president to impose a temporary import surcharge of up to 15 percent for up to 150 days to address balance of payments concerns, without the constitutional vulnerability the Court identified in IEEPA. Treasury Secretary Bessent stated that the combination of Section 122, the existing Section 232 tariffs, and ongoing Section 301 tariffs on Chinese goods was expected to produce total tariff revenues broadly comparable to the IEEPA regime. The administration also announced the launch of new trade investigations under other statutory authorities as the basis for further actions.
Markets responded with initial relief and then uncertainty. The S&P 500 rose modestly on the day, reflecting investor satisfaction that the IEEPA surcharges would fall, before giving back some ground as the replacement tariff announcement clarified that the net change in import costs would be less dramatic than the ruling alone implied. The effective tariff rate on US imports fell significantly but did not return to its pre-2025 baseline, and the replacement surcharge added a new set of compliance questions from the day it was announced.
US Q4 2025 GDP came in at 1.4 percent, but the shutdown explains most of it
Also on Friday, the Bureau of Economic Analysis published the long-delayed advance estimate of fourth-quarter 2025 GDP, rescheduled from its original January 29 date because of data disruptions caused by the government shutdown. The economy grew at an annualised rate of 1.4 percent between October and December, a steep deceleration from the 4.4 percent recorded in the third quarter and below most forecasts.
The BEA estimated that the federal shutdown, which ran for 43 days through much of October and November before ending in early December, subtracted approximately one full percentage point from headline growth. The mechanism is accounting-driven: when furloughed federal employees are not working, the statistical output attributed to the government sector declines, even though those same employees later received back pay. Strip out that effect, and the underlying pace of private-sector activity in the quarter was closer to 2.4 percent on an annualised basis, a figure broadly consistent with the momentum the economy had been carrying through 2025.
The private-sector details support that reading. Consumer spending rose at an annualised rate of 2.4 percent, down from 3.5 percent in Q3 but still positive. Business investment remained healthy. The measure economists use to filter out government noise, real final sales to private domestic purchasers, grew at 2.4 percent for the quarter, its third consecutive quarter at that level. The softer components were government spending, which fell due to the shutdown, and exports, which fell 0.9 percent after surging 9.6 percent in the prior quarter.
The inflation readings in the GDP report were less reassuring. The PCE price deflator rose at an annualised rate of 2.9 percent in the fourth quarter, while core PCE excluding food and energy ran at 2.8 percent for the full year 2025. Both figures remained above the Federal Reserve's 2 percent target. The full-year 2025 GDP growth rate came in at 2.2 percent, down from 2.8 percent in 2024 but still a solid result. The picture heading into 2026 is of an economy that grew moderately, ran inflation above target, and had just absorbed a significant institutional disruption without breaking.
Industrial production extended its run of consecutive monthly gains
Two days before Friday's twin events, the Federal Reserve had reported that US industrial production rose 0.7 percent in January from the prior month, the strongest monthly gain since February 2025 and the third consecutive monthly increase. Manufacturing production rose 0.6 percent, its fastest pace in close to a year, with gains distributed broadly across durable and nondurable goods categories. Mining output also increased. The capacity utilisation rate climbed to 76.2 percent, the highest level in six months and up from 75.7 percent in December.
The manufacturing sector spent much of 2024 and early 2025 contracting, before a recovery took hold in the autumn. The January data extended that recovery into a third month, with the AI infrastructure buildout continuing to support demand for computers, electronics and related components in ways that are less sensitive to the trade policy uncertainty that has weighed on other categories. Capacity utilisation at 76.2 percent remains below the long-run average of around 79 percent, suggesting the industrial sector has room to expand further before encountering supply constraints.
The industrial production report, which would normally have been the week's main data story, was largely overshadowed by Friday's events. Taken together with the GDP report, however, it painted a consistent picture: a US economy that had entered 2026 with genuine underlying momentum, carrying above-target inflation, facing significant policy uncertainty, and operating with a labour market that remained broadly stable despite the rolling headwinds of federal headcount reductions and an erratic trade policy environment.