US – Nominal growth heats up
Economic growth cooled at the beginning of 2026, but despite the war in Iran, leading indicators have held up better than we anticipated. Improving labour market conditions and still solid investment demand lift the growth outlook.
We keep our 2026 GDP growth forecast at 2.0% (from 2.0%) and lift 2027 to 1.8% (from 1.7%). Potential for future growth relies increasingly on fixed investments, not least related to AI, while consumers' ability to increase spending is limited by muted real wage sum growth.
Inflation has exceeded our forecasts partly because of prolonging war in Iran, but also as underlying price pressures have increased. We lift our forecast for headline inflation to 3.5% in 2026 (from 2.4%) and 2.8% in 2027 (from 2.4%), and core inflation to 2.8% in 2026 (from 2.5%) and 3.0% in 2027 (from 2.6%).
In late May, we revised our forecast for the Fed Funds Rate higher, and now expect two rate hikes in December and March. The risk of more persistent inflation pressures has increased while downside risks to labour markets have eased. That said, weak real income growth remains a downside risk for both our real GDP and policy rate expectations.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
