Danske Research Team expects US growth to cool further in 2026 despite a slightly higher GDP forecast, citing structural headwinds. Inflation is projected to remain contained, with both headline and core measures near 2.5%. The bank now anticipates the Federal Reserve will cut rates twice in 2026 and then hold policy steady through 2027.
Fed seen cutting then holding rates
“We lift our 2026 GDP growth forecast to 2.0% (from 1.8%) but maintain 2027 at 1.7%. Stagnant labour supply growth and cooling wage growth are set to weigh on household consumption growth, which is only partially compensated by rising fixed investment spending.”
“Inflation continues to evolve mostly in line with our forecasts despite the distortions that affected data in Q4. Slowing housing and unit labour cost growth will maintain overall inflation in check, even though tariff pass-through will still lift goods and food prices in 2026.”
“We forecast headline inflation at 2.4% in 2026 (from 2.5%) and 2.4% in 2027 (unchanged). We forecast core inflation at 2.5% in 2026 (from 2.8%) and 2.6% in 2027 (unchanged).”
“We expect the Fed to deliver two more 25bps rate cuts in June and September (prev. March and June) and then maintain the terminal rate of 3.00-3.25% through the rest of 2026 and 2027 (unchanged). Risks around the outlook are balanced.”
“Sudden slowdown in private consumption could tilt the Fed towards resuming more aggressive rate cuts, but fiscal easing and stronger global manufacturing boom could allow the Fed to maintain rates at current levels for longer.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/fed-gradual-cuts-and-steady-inflation-path-danske-bank-202603061153
