Our economic outlook for the United States
June 17, 2026
Trajectory of inflation to constrain policy
“We expect price pressures to keep the Fed constrained, even as near-term dynamics are heavily influenced by one-off factors.”
Josh Hirt,
Vanguard Senior U.S. Economist
Near the halfway point of the year, our U.S. economic outlook remains constructive, supported by exceptional strength in AI-led business investment, a firmer-than-expected pace of job creation, and a consumer who has remained resilient despite higher energy prices and cooling wages.
That said, price pressures have reemerged as a factor, and we have upgraded our year-end core inflation estimate above 3%. This upward revision is driven by sticky services inflation and a range of potential one-off factors, including the lingering effects of tariff pass-through, energy price increases owing to the conflict in the Middle East, and the likely overstatement of AI-related category inflation.
We continue to view the labor market as fundamentally healthy. We anticipate a summer slowdown in hiring activity, which could bias the unemployment rate upward. However, such a development would be driven by non-fundamental factors such as catch-up from mild winter weather in much of the country and revisions to new business creation. Looking further out, we expect the unemployment rate to stabilize in the mid-4% range and be consistent with full employment.
In this environment, we anticipate that the Federal Reserve will be constrained, even with a range of views on the Federal Open Market Committee about inflation and the labor market. We have removed our previously expected rate cut for 2026 and now expect that the policy rate will remain in its current range through 2027.
United States economic forecasts
Notes: GDP growth is defined as the fourth-quarter-over-fourth-quarter change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December for each year. Core inflation is the year-over-year percentage change in the Personal Consumption Expenditures price index, excluding volatile food and energy prices, as of December for each year. Monetary policy is the rounded midpoint of the Federal Reserve’s target range for the federal funds rate at year-end.
Source: Vanguard.
Non-housing services inflation has remained sticky in recent years
Notes: Non-housing services inflation remains well above pre-pandemic levels, helping to explain why U.S. core inflation more broadly continues to exceed the Federal Reserve’s 2% target. This chart shows the weighted average share of non-housing services subcomponents in the Personal Consumption Expenditures (PCE) price index basket with price changes above or below specified thresholds. The most recent reading points to continued broad-based price pressures, with nearly 34% of subcomponents having a year-over-year inflation rate of more than 4%. While this share has declined relative to the pandemic peak, it remains nearly three times the 2012–2019 average of about 12%.
Sources: Vanguard calculations, based on U.S. Bureau of Economic Analysis data as of April 2026.
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