U.S. Economic Growth Set to Accelerate: Fitch Upgrades 2025-2026 GDP Projections Amid Inflation Concerns

Fitch Ratings has recalibrated its economic forecasts for the coming years, and the numbers tell an interesting story. The ratings agency bumped up its U.S. GDP growth estimate for 2025 to 2.1%, a meaningful 30-basis-point lift from the 1.8% projection issued in December’s Global Economic Outlook. Looking ahead to 2026, the outlook improved similarly, with growth expectations rising from 1.9% to 2.0%. These revisions incorporate previously delayed economic data from the government shutdown, offering a clearer picture of the economy’s actual trajectory.

Inflation Resurges as a Key Headwind

The price stability picture, however, tells a different story. With October data still incomplete, the inflation trend remains somewhat murky, but Fitch’s baseline scenario points upward. The consumer price index is expected to climb to 3.0% by year-end 2025, a notable jump from November’s 2.7% reading. The outlook darkens further into 2026, with inflation projected to reach 3.2% by the end of that year, largely driven by the delayed economic impact of tariff policies that haven’t fully worked through the system yet.

Labor Market Holds Steady Despite Growth Concerns

Employment dynamics present a mixed picture. While job creation is cooling—a typical pattern when growth moderates—this weakness is offset by a parallel slowdown in labor force participation. The result: the average unemployment rate is expected to hover near 4.6% throughout 2026, largely unchanged from current levels. This balance suggests the labor market won’t be a major drag on economic activity in the near term.

Federal Reserve Poised for Rate Cuts

The monetary policy backdrop is shifting. Fitch anticipates the Federal Reserve will move forward with two interest rate reductions during the first half of 2026, bringing the upper boundary of the federal funds rate down to 3.25% from current levels. This would mark a significant policy pivot from the tightening cycle of recent years, responding to the moderating growth and employment dynamics outlined above.

The bottom line: the U.S. economy appears positioned for steady expansion over the next 18 months, but rising inflation and tariff effects will likely keep policymakers vigilant as they navigate between supporting growth and controlling price pressures.