Our economic outlook for the United States

The U.S. economic outlook remains constructive, supported by continued strength in business investment and generally resilient household demand. That said, recent developments have led us to modestly recalibrate our expectations. We have downgraded our 2026 real GDP growth forecast by 0.2 percentage points to 2.3%, reflecting firmer energy prices and emerging tariff pass‑through effects. While these headwinds are likely to weigh modestly on consumption, they are not expected to fundamentally alter the expansionary backdrop created by the One Big Beautiful Bill Act, particularly as robust AI‑related capital expenditures continue to provide an important offset and remain a central pillar of growth momentum in 2026.

We continue to view the labor market as fundamentally resilient, albeit transitioning toward a slower growth phase, and we have thus revised our year‑end 2026 unemployment rate forecast to 4.6% from 4.2%. Heavily concentrated job creation in health care continues to reflect structural demand in health care services, a trend we expect to persist over the coming years. Even with the upward revision, our outlook remains consistent with a healthy labor market, given the unemployment rate stood at 4.4% in February 2026. We continue to see AI‑related displacement as a limited risk in 2026, although those risks are likely to build in 2027–28 as adoption broadens.

Inflation has resumed its uneven deceleration, though at a slower pace than previously anticipated. We have revised our year‑end 2026 core inflation forecast up by 0.2 percentage points, driven by renewed firmness in non‑housing services, incremental tariff pass‑through, and higher energy prices amid escalating geopolitical tensions involving Iran.

We continue to monitor energy markets and geopolitical developments in the Middle East for their potential to push headline inflation higher or tighten financial conditions. Against this backdrop, we assess monetary policy to be near neutral. While we retain our expectation for a single policy rate cut in 2026—consistent with the Federal Reserve’s willingness to look through energy‑driven price shocks—the principal risk has shifted toward a longer period of policy inertia, particularly if labor market cooling remains gradual and inflation progress proves uneven.