2026 Economic Outlook

by Eugenio J. Alemán of Raymond James, 1/15/26

Key takeaways

  • Our GDP forecast for year-end 2026 is 2.2%, but we remain alert to risks that could prompt adjustment.
  • We expect fiscal stimulus and AI investment to support the economy and the labor market to maintain an uneasy equilibrium as employers assess how AI is affecting their businesses.
  • Given higher economic growth, we see little room for the Fed to cut rates more than once.
  • We believe the disinflationary trend will continue, even while inflation remains sticky.

One of the biggest risks the US economy faced in 2025 was the uncertainty brought about by the Trump administration’s implementation of tariffs. But high tariff uncertainty was counterbalanced by an impressively strong surge in investment in data centers linked to the AI-driven burst that kept the economy from going under.

The environment for 2026 will be more certain in many ways, as some of the Trump administration’s new policies will be behind us while others are expected to boost economic growth. We expect the economy to have a good year in 2026 although, as always, there will be plenty of risks. For the most part, some parts of the One Big Beautiful Bill Act (OBBBA), which includes some front-loaded fiscal stimulus, will support economic activity during the year.

Economic growth

We project the economy will grow by 2.2% during 2026 and by 2.3% in 2027. Growth in 2026 will be the consequence of some of the provisions of the OBBBA, which will subsidize investment through accelerated depreciation. This has the potential, together with sustained AI-driven investment, to keep real investment in the economy strong. Although we don’t expect the recent increase in AI investments to accelerate further going forward, we do expect it to remain relatively strong and supportive of the overall strength in real investment during the next several quarters. While we don’t expect a robust rebound in residential investment, we anticipate a modest uptick driven by slightly lower mortgage rates compared to 2025. Our expectation for lower mortgage interest rates next year is based on a steady disinflationary process once the effects of tariffs are out of the system.

The advanced purchase of durable goods in 2025 due to the increase in tariffs will continue to keep growth in durable goods limited during 2026. At the same time, we don’t see much growth coming from discretionary consumption, especially if income growth remains constrained by a weak labor market.

Employment and income growth

We do not see employment improving markedly during 2026 and thus, incomes as well as consumer demand will remain challenged compared to the last several years. Furthermore, we do not see large employment losses and expect the rate of unemployment to remain relatively low and thus supportive of growth in consumer demand.

The Trump administration’s immigration policies are going to continue to put pressure on the availability of workers. However, these pressures are not going to be homogeneous across sectors. Although AI investment has the potential to reduce the need for workers in several industries (due to an increase in productivity from workers applying AI on their jobs plus the elimination of some jobs due to automatization) there are sectors that benefit much less from the AI-productivity revolution. Sectors such as construction, leisure and hospitality, and retail, just to mention a few, are going to continue to struggle to find workers.

Although one of the reasons for the crackdown on immigration is supposed benefits to American workers, it is highly unlikely that American workers would take the jobs that these groups of immigrants perform, likely due to low wages and poor working conditions. Furthermore, the reduction in immigration as well as the increase in deportations means that those individuals will not be consuming, will not be renting, etc., and thus firms will not have to hire more workers to support higher consumption coming from these sectors of the economy.