Outlook for the U.S. Economy in 2026
According to the latest long-term forecast from the Congressional Budget Office, 2026 is shaping up to be a pivotal year for the U.S. economy. Real GDP growth is projected to reach 2.2%, signaling a rebound from prior sluggishness and a return to moderate expansion.
Inflation on a Downward Trajectory
On the price front, the core PCE inflation rate—closely monitored by the Fed—is expected to settle at 2.7% in 2026, declining further to 2.1% by 2028, nearing the central bank’s long-term target. This suggests that prior monetary tightening is taking effect, with inflationary pressures gradually easing.
Tight Labor Market Persists
The unemployment rate is forecast to drop to 4.6% in 2026 and fall further to 4.4% by 2028, highlighting labor market resilience. However, strong demand for workers continues to outpace sluggish labor force growth, creating imbalances that could fuel wage pressures and impact productivity.
Interest Rates Point to Easing
A key takeaway is the projected decline in the federal funds rate to 3.4% by the fourth quarter of 2026. This indicates a potential shift toward accommodative policy as inflation stabilizes, opening the door for rate cuts that could support investment and consumer spending.
- GDP growth forecast at 2.2% in 2026
- Core PCE inflation: 2.7% in 2026, down to 2.1% by 2028
- Unemployment rate expected to fall from 4.6% to 4.4%
- Strong labor demand amid constrained supply
- Policy rate projected to decline to 3.4% by late 2026
Overall, the U.S. economy appears to be entering a phase of renewed growth and cooling inflation, though structural challenges remain. The path forward will depend heavily on policy decisions and the evolution of the labor market.