Our economic outlook for the United States

The January Federal Open Market Committee meeting provided further evidence that monetary policy will proceed more cautiously in 2026. Our baseline expectation is for firm growth ahead, and with the federal funds rate now aligned with a range of neutral estimates, we expect the Federal Reserve to become more cautious about easing. (The neutral rate is the interest rate that would neither stimulate nor restrict economic activity.)

U.S. economic momentum continues to be anchored by robust capital outlays, which have played a central role in driving growth over the past year. We expect business investment to remain a major source of strength in 2026. A significant part of this support comes from the rapid expansion of AI‑related spending, which we estimate to still be in the early stages.

Recent data have provided positive signs of continued disinflation. Some modest tariff-related impacts will still likely filter through early this year, and we expect core inflation to crest slightly above 3% before easing later in the year.

Job creation has cooled considerably over the past year. Even so, we believe the underlying labor backdrop remains stable. We assess that demographic dynamics and immigration flows explain about 70% of a recent hiring slowdown, rather than a deterioration in labor demand. We see the unemployment rate firming toward 4.2% by the end of 2026.