Wells Fargo economists expect the US economy to expand at a solid pace in 2026, supported by clearer policy direction, easing monetary conditions and a stabilization in trade policy after a volatile 2025.
In their outlook, the analysts project US real GDP growth of 2.3% on an annual average basis next year, citing a more supportive fiscal environment and reduced policy uncertainty.
“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 and fiscal policy
The outlook assumes continued resilience from US consumers, though Wells Fargo does not expect household spending to be the primary engine of growth next year. Instead, consumption is seen as providing steady support rather than outsized momentum.
Tax changes embedded in the One Big Beautiful Bill Act (OBBBA) are expected to provide targeted relief, particularly for lower- and middle-income households. According to the analysts, those groups are positioned to benefit most from the fiscal adjustments as cost-of-living pressures remain elevated.
“The resilient consumer continues to help shore up economic activity, though consumer spending is not poised to be an outperforming driver of growth in 2026,” the analysts wrote.
Investment driven by technology and AI
Business fixed investment is expected to remain a key contributor to growth, with technology- and AI-related spending continuing to lead.
Wells Fargo noted that investment-friendly tax policies, lower interest rates and a decline in policy uncertainty should gradually lift more traditional capital expenditure categories that have lagged in recent periods.
“Business fixed investment has been, and will continue to be, sustained by the splurge on all things tech- and AI-related,” the analysts wrote, adding that these conditions should help broaden investment growth beyond technology over time.
Tariffs and trade policy
Trade policy remains a central theme in the 2026 outlook, though Wells Fargo expects less volatility compared with this year. While tariffs are unlikely to return to 2024 levels, the analysts believe 2025 marked the peak in the US average effective tariff rate.
“Tariff rates are not going back to 2024 levels anytime soon, but we think 2026 will show that 2025 was the peak for the US average effective tariff rate,” the analysts wrote.
With around 60% of US goods imports now subject to tariffs and legal challenges still under review, the firm expects tariff rates to remain elevated but more stable. Smaller import swings and a modest widening of the trade deficit are anticipated, leaving net exports as a largely neutral influence on GDP growth next year.
Inflation and the labor market
Inflation is expected to remain above the Federal Reserve’s 2% target through the end of 2026, though Wells Fargo sees gradual improvement.
The analysts project core PCE inflation of 2.6% on a year-over-year basis by the fourth quarter of 2026, reflecting easing labor market pressures, anchored inflation expectations and potential tariff relief.
“Our base case forecast for core PCE inflation to be 2.6% on a Q4/Q4 basis in 2026 would mark a directional improvement,” the analysts wrote.
Labor market conditions are expected to remain stable despite mixed signals caused by delayed government data. Wells Fargo expects economic growth and reduced uncertainty to support hiring and keep the unemployment rate below 4.5%.
Monetary policy expectations
Wells Fargo’s base case calls for the Federal Open Market Committee to cut rates by 25 basis points at its December meeting, with two additional cuts by mid-2026.
This path would place the terminal fed funds rate between 3.00% and 3.25%.
“While opinions may differ among members of the Federal Open Market Committee, there is generally a shared view that short-term rates are tracking toward a terminal fed funds rate that is less restrictive than it is today,” the analysts wrote.
Global economy and currency outlook
Globally, Wells Fargo expects economic resilience to continue in 2026, though at a slower pace than in 2025. The firm forecasts global growth of 2.8%, down slightly from an estimated 3% this year, with protectionist trade policies and a softer Chinese economy acting as headwinds.
“We continue to expect global economic resilience, but we forecast the global economy to grow 2.8% in 2026,” the analysts wrote.
On currencies, Wells Fargo anticipates near-term US dollar weakness driven by monetary policy divergence between the Federal Reserve and other central banks. However, the firm expects the dollar to strengthen later in the year as Fed easing concludes and concerns about de-dollarization fade.
Policy clarity supports outlook
Overall, Wells Fargo sees 2026 as resting on a firmer policy foundation than 2025, with clearer fiscal direction, less restrictive monetary policy and a more predictable trade environment combining to support steady economic growth.
“The confluence of stimulative fiscal policy and something closer to neutral monetary policy together ought to underpin solid US economic growth in 2026,” the analysts wrote.