Economic momentum has picked up lately despite growing headwinds. High imports and inventory drawdowns hid strong underlying domestic growth in consumption and investment.
We raise our 2026 GDP growth forecast slightly to 2.1% from 2.0% and keep our 2027 forecast at 1.8%. Growth slightly exceeded our expectations in first half of 2026. Consumption faces growing headwinds as potential for future real wage sum growth is limited by declining labour supply. Future growth relies increasingly on fixed investment, not least related to AI.
Inflation has fallen a bit more than expected, but we see it broadening. We lower our headline inflation forecast to 3.2% in 2026 (from 3.5%) and to 2.5% in 2027 (from 2.8%). We forecast core inflation at 2.6% in 2026, rising to 2.9% in 2027.
We maintain our call for two Fed rate hikes in December and March. We still see an elevated risk of more persistent inflation pressure and a tighter labour market.
