Fed Expects Stronger Growth & Higher Inflation in 2026

In its September 2025 economic projections, the Federal Reserve revised its outlook for U.S. economic growth upward, lifting its 2025 GDP growth forecast to 1.6 percent, compared to 1.4 percent in June, and raising its 2026 forecast from 1.6 to 1.8 percent. This adjustment reflects a modest improvement in the economic climate, supported by stronger-than-expected consumer spending and business investment.

However, the Fed left largely unchanged or even slightly degraded its unemployment and inflation forecasts, signaling ongoing caution about price pressures and labor market stability. The central bank's median projection for inflation in 2025 remains at 3 percent, but it now anticipates a rate of 2.6 percent next year (compared to 2.4 percent forecast in June). A gradual return to the 2 percent inflation target is nevertheless expected by 2028.

In this context, the U.S. central bank has gradually lowered its key interest rate by half a percentage point over the past two months, bringing it down to a range of 3.75 to 4.00 percent at the end of October.