Economists expect inflation, weak hiring to stunt growth through ’26

Economic growth will increase next year but remain under 2 percent through 2026 due to inflation and weak hiring conditions, according to a committee of 16 chief economists from North America’s largest banks. .The Economic Advisory Committee forecast was released Sept. 24. Economists are “optimistic but cautious,” said Chair Luke Tilley, chief economist at M&T Bank/Wilmington Trust in Buffalo, N.Y. “We really do see an economy that is fundamentally strong,” he added. The EAC estimates the odds of a recession as one-in-four this year, increasing to one-in-three in 2026. “With the labor market weakening and persistent inflation headwinds, the U.S. economy continues to grow at a slow pace,” Tilley said. Overall, 1.3 percent GDP growth is slated for this year, with that number rising to 1.8 percent in 2026 amid stronger consumer spending and investment. Slowed growth this year is driven by consumers impacted with higher goods prices that are impacted by tariffs, Tilley added. Tilley attributed this year’s slowdown to demand and supply side factors, the latter of which he attributed to a drop in immigration and supplies. Firms have significantly cut their job openings, especially since President Donald Trump imposed tariffs on numerous countries last spring. Even so, unemployment rates have not spiked. The EAC expects unemployment will rise to 4.6 percent in the first quarter of 2026, before falling to 4.4 percent by the end of the year. “The labor market is facing significant challenges,” Tilley said.“It’s not a story about layoffs, it’s more of a story of a lack of hiring,” he added. Inflation is expected to remain higher than the Federal Reserve’s 2 percent target, rising to 2.8 percent early next year before falling to 2.6 percent by the end of 2026 amid higher prices and rates for goods — especially for those exposed to tariffs. The Federal Open Market Committee is slated to cut its effective federal funds rate three times through the second half of next year, to a range of between 3.25 to 3.5 percent from 4.12 percent, and hold it there until the end of 2026. Significant changes are not expected to mortgage rates and home price appreciation in the near-future, with mortgage rates remaining around 6.4 percent through the end of 2026. National house price appreciation is expected to increase next year on a 1.1 percent annualized basis. The EAC expects supply side challenges to continue next year as the rising use of artificial intelligence enables more companies to streamline their operations. Sparked by lower interest rates and continued asset price appreciation, consumer credit delinquency rates are expected to fall to 2.7 percent by the end of next year from its current mark of 2.9 percent.The prediction was released as the U.S. government veers closer to shutting down once the fiscal year ends Sept. 30. The House has passed a short-term funding bill, but the proposal has not passed the Senate. Democrat and Republican leaders have blamed each other for not passing a funding agreement. President Donald Trump recently canceled a meeting with top Democrats after criticizing the funding stances taken by House Minority Leader Hakeem Jefferies (D-N.Y.) and Senate Minority Leader Chuck Schumer (D-N.Y.). Tilley predicted a short-term shutdown will likely not significantly impact the economy, while a longer-term shutdown will have a more substantive impact.