The American Bankers Association’s Economic Advisory Committee expects the U.S. economy to continue expanding at a solid pace through the remainder of 2026 and into 2027. This growth will come even as the group projects inflation will remain above the Federal Reserve’s 2% target, driven by higher oil prices and services inflation.
The committee, which consists of chief economists from some of North America’s largest banks, projects real GDP growth of 2.7% in the third quarter of 2026, 2.2% in this year’s fourth quarter and 2.2% in 2027. Steady consumer spending and robust business fixed investment will support growth. Investment in data centers and related technology equipment will drive business investment, which is expected to grow by 6.7% in the second half of 2026 and by an additional 4.5% in 2027.
While elevated inflation has remained a concern for several years, the committee projects that inflation will moderate but remain above the Federal Reserve’s 2% target through the end of next year. Members expect the core personal consumption expenditures (PCE) index, the Fed’s preferred measure that excludes food and energy prices, to reach 3.3% in the fourth quarter of 2026. The bank economists project core inflation to slow to a still-elevated 2.4% in 2027. The committee’s forecast is premised on West Texas Intermediate (WTI) crude oil remaining around $90 per barrel in Q4 2026 before declining in 2027.
Despite above-target inflation, committee members expect the labor market will remain balanced over the duration of the forecast. Productivity growth is expected to strengthen to a robust 2% pace over the coming year, allowing the unemployment rate to remain stable at about 4.2% alongside solid growth.
“Economic growth and labor market conditions remain resilient enough to withstand underlying inflation pressures,” said Beth Ann Bovino, committee chair and chief economist at U.S. Bank. “Slower labor-force growth from demographic developments has reduced the ‘breakeven’ pace of job creation needed to maintain labor market balance.”
Following last week’s Federal Reserve rate increase, the committee expects an additional federal funds rate hike in the fourth quarter of 2026. The group forecasts the Fed will remain on hold next year, but persistent inflation raises the risk of further rate hikes.
Higher interest rates are expected to weigh on housing activity. The committee expects mortgage rates to remain above 6.8% over the next year. Home prices are projected to increase 1.8% next year, weighing on affordability. Residential investment is expected to remain sluggish over the next year.
“While the labor market and broader demand are intact, housing is expected to remain under pressure,” Bovino said. “The mortgage lock-in effect for many existing homeowners, high mortgage rates and high home prices may improve inventory, but broader housing affordability challenges will weigh on home sales activity.”
