Wells Fargo economists expect US growth to firm up in 2026 as fiscal policy becomes more stimulative, monetary policy eases, and the tariff environment stabilizes compared with the volatility seen this year.
The bank projects real GDP growth of 2.3% on an annual-average basis.
“The improved outlook reflects a more supportive fiscal policy environment, a less restrictive monetary policy setting and a tariff regime that is not characterized by near-constant escalation as it was this year,” the analysts wrote.
Consumer spending is expected to remain resilient but not a standout contributor to growth, with the Trump administration’s One Big Beautiful Bill Act offering some near-term tax relief for lower- and middle-income households.
Business investment is set to remain a key driver, lifted by ongoing demand for technology and AI-related capital expenditure. Meanwhile, lower interest rates, reduced uncertainty and investment-friendly tax measures should help broaden investment gains.
“Investment-friendly tax policy changes help on the margin, and so will lower rates and an anticipated decline in policy uncertainty next year,” the analysts wrote.
Tariffs are expected to remain elevated, but Wells Fargo wrote that 2025 marked the peak in the average effective tariff rate. A period of stabilization or modest decline next year would support activity.
“Tariffs are not going away completely, but a similar escalation in import levies seems unlikely to be repeated in 2026,” Wells Fargo believes.
The bank expects inflation to remain above the Federal Reserve’s 2% target through the end of next year, though the trend should improve gradually. Tariff-related goods inflation is likely to persist into mid-2026, while services inflation continues to slow.
“We expect inflation to still be above 2% by the end of next year,” the analysts wrote, projecting core PCE inflation at 2.6% on a Q4/Q4 basis in 2026.
Anchored expectations, softer labor market conditions, and solid productivity growth are factors that should help guide inflation lower, according to the firm.
Labor market readings have been distorted by the blackout of government data during the shutdown, and alternative indicators point to slow hiring but no clear deterioration, the analysts added.
The firm wrote that recent data offer a “mixed picture of the jobs market—not improving, but not falling apart either.”
They expect the unemployment rate to hover around 4.5% in 2026, with modest improvement late in the year as hiring picks up to roughly 90,000 jobs per month.
On monetary policy, Wells Fargo’s base case remains for a 25-basis-point rate cut at the Federal Reserve’s December meeting.
However, they cautioned that “another rate cut in December is far from certain,” citing a more hawkish tone among some policymakers.
The bank forecasts two additional cuts in the first half of 2026, which would bring the federal funds rate to 3% to 3.25%. The economists see risks skewed toward a lower rate path if economic conditions soften.
Globally, Wells Fargo expects expansion in 2026 but at a slower pace than in 2025. Many economies withstood elevated tariffs and uncertainty this year, and a steadier policy environment should support continued growth. Still, the analysts warn that protectionist trade policies enacted in recent months will weigh on global activity.
Early-year monetary divergence may pressure the dollar, but the bank sees room for a rebound once US rate cuts end. “The dollar can rebound and discussions about the greenback losing its reserve FX status should diminish,” they wrote.