Our economic outlook for the United States
July 09, 2026
Policy on hold as inflation lingers and hiring slows
“In the near term, we expect conditions to keep the Fed holding rather than hiking.”
Josh Hirt,
Vanguard Senior U.S. Economist
Price pressures have reemerged as a factor in the outlook and will be a leading determinant of the policy trajectory. The recent significant and rapid easing of energy prices is a welcome factor that will mitigate growth headwinds and concerns of significant pass-through into prices this year.
June’s softer labor market data aligned with our expectations for a summer slowdown in hiring activity, which will bias the unemployment rate modestly upward over the next several months. However, we continue to view the labor market as fundamentally healthy. We expect the unemployment rate to stabilize in the mid-4% range and be consistent with full employment through 2027.
In this environment, we anticipate that the Federal Reserve will be constrained. Inflation remains uncomfortably above target, and while price pressures should ease and the labor market should soften modestly over the coming months, we view policy on hold through 2026 as the most likely outcome.
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.
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