Summary

• Moderate GDP growth of 1.5–1.8% is projected for 2026, marking a slowdown from 2025 amid persistent policy uncertainty, elevated tariffs, and a drag from tighter government budgets. Several contrasting views hover around 2.75% for GDP growth.

• Inflation is expected to remain sticky above the US Federal Reserve’s (the Fed) 2% target, with core PCE inflation projected at 2.5% by year-end 2026, as tariff-induced pressures and tight labour markets offset easing monetary policy.

• Rate cuts: The Fed is expected to cut rates modestly to around 3.4% (a 3.25-3.50% range) by end-2026, though persistent inflation and labour market resilience may constrain the pace of easing.

 

GDP Growth Expectations for the US in 2026

The US economy enters 2026 with moderating momentum as restrictive trade policies and fiscal consolidation weigh on growth. Consensus forecasters—including the Conference Board (1.5%), the OECD (1.7%), Morgan Stanley (1.8%), and Moody's (1.8%)—project real GDP growth of 1.5-1.8% for 2026, down from approximately 2% in 2025 (OECD and S&P Global). This slowdown reflects the combined impact of tariffs, immigration-related labour constraints, and reduced fiscal stimulus, partially offset by resilient consumer spending and continued investment in artificial intelligence (AI) and productivity-enhancing technologies.

Contrasting views emerge from Bank of America (BofA) Global Research, Goldman Sachs Research, and Federated Hermes. BofA Global Research forecasts stronger-than-expected real GDP growth of 2.4% in 2026, while Goldman Sachs Research projects a more optimistic “sturdy” growth rate of 2.8%, citing tax cuts, easier financial conditions, and a reduced tariff burden on the economy. Federated Hermes, meanwhile, holds an even more constructive view, projecting US real GDP growth of 3.0% in 2026. Its outlook is based on the key components of GDP: consumer spending, corporate capital expenditures (capex), and the housing market.

      Consensus and Contrasting Views (2026 GDP Growth Expectations)

 

 

 

 

 

                                                                                                                                                                                                                                                                                       

           US GDP Annual Growth Rate (US GDP by Quarter, 2023-2026)

                        United States GDP Annual Growth Rate (%)

Source: tradingeconomics.com | U.S. Bureau of Economic Analysis

 

Inflation, Interest Rates, Trade, and Labor Pressures Shaping 2026

Inflation dynamics remain the primary policy challenge heading into 2026. Core PCE inflation is projected to stabilize around 2.5% by year-end, well above the Fed’s 2% target, according to the Fed’s December 2025 Summary of Economic Projections.

Trade policy continues to sustain price pressures. Data from the Budget Lab (TBL) at Yale show that the effective US tariff rate has risen to nearly 18%, among the highest levels since 1935. While the peak inflationary impact occurred in mid-2025, tariffs continue to feed through to consumer and producer prices, with secondary effects—such as constrained labour supply and potential fiscal stimulus—likely to keep inflation elevated through much of 2026.

            US Consumer Price Index 12-month % change (2005-2025)

Source: U.S. Bureau of Labor Statistics.  Note: Shaded area represents recession, as determined by the National Bureau of Economic Research.

Against this backdrop, the Fed’s interest rate easing path is expected to remain cautious. The Fed’s December 2025 dot plot indicates that the federal funds rate will reach 3.4% (median estimate) by year-end 2026, representing modest easing from the current 3.50–3.75% range. Some divergence exists: Morgan Stanley anticipates two rate cuts to a 3.00–3.25% range, contingent on continued inflation moderation.

                        US Federal Funds Effective Rate

                 FED Funds Rate % (July 1954 – December 2025)

Source: Board of Governors of the Federal Reserve System (US) via FRED®, Federal Reserve Bank of St. Louis.  Note: Shaded area indicate US recessions.

Additionally, labour market conditions are softening. The US unemployment rate rose to a four-year high of 4.6% in November, up from 4.4% in September, as reported by the U.S. Bureau of Labor Statistics. Economists forecast this gradual cooling to persist through at least the first half of 2026.