Bank Economists See Moderate Growth, Persistent Inflation Amid Geopolitical Uncertainty

 The American Bankers Association’s Economic Advisory Committee expects the U.S. economy to continue expanding through the remainder of 2026 and into 2027. The committee's latest forecast also expects inflation to remain above the Federal Reserve’s 2% target due in part to geopolitical events, including trade policy and the ongoing military action in the Middle East.

The committee—made up of chief economists from some of North America’s largest banks—projects real economic growth of 2.2% in 2026 and 2.1% in 2027, a modest increase from their September 2025 survey. 

“Labor market uncertainties and persistent price pressures continue to weigh on the outlook, yet the economy is still growing at a measured pace,” said Beth Ann Bovino, committee chair and chief economist at U.S. Bank. “The group anticipates positive economic performance this year and next, supported by solid consumer spending and business investment, as well as a rebound in government spending after the 2025 shutdown.”

Labor market worries have declined slightly since the committee’s previous meeting. Members expect the unemployment rate to rise and peak at 4.5% in the middle of 2026 before edging down slightly to 4.3% toward the end of next year. The committee also expects some improvement in the breadth of job growth.

“While the committee sees improvement, we’re still in this low fire, low hire economy,” Bovino added. “Outside of healthcare, the economy lost jobs in 2025, creating challenges for workers as businesses navigate today’s economic uncertainties.”
 
The committee continues to expect inflation to remain above the Federal Reserve’s 2.0% goal—a concern consistent with its September 2025 forecast. Members project overall personal consumption expenditures inflation, the Fed’s preferred measure, to peak at 2.8% in the second quarter of 2026 but decline to 2.1% by the end of 2027. Although the full economic impact of the current conflict with Iran remains unclear, the committee notes that higher oil prices were an anticipated risk.

The Federal Reserve is expected to reduce rates over the coming quarters, though that is dependent on current geopolitical events and progress on inflation. The committee expects roughly one 25 basis point federal funds rate cut between now and Q1 2027, leaving the federal funds rate in a range of 3.25% to 3.5%.

“Inflation remains a primary source of macroeconomic risk, and our baseline expectation is that it will persist above the Federal Reserve’s 2% objective over the forecast horizon,” Bovino said. “Geopolitical developments—particularly disruptions tied to the conflict in the Middle East —reinforce the committee’s assessment that elevated energy prices will exert continued upward pressure on PCE inflation in the near term.”

On housing, the committee expects modest relief in mortgage rates and some home price appreciation in the near term. Bank economists foresee mortgage rates hovering slightly above 6% between now and the end of next year and project national home prices to rise just 1% this year. The committee sees some stabilization in homebuilding this year.

View detailed EAC forecast numbers. 

The 2026 ABA Economic Advisory Committee includes:

• EAC Chair Beth Ann Bovino, SVP and chief economist, U.S. Bank, New York;
• Scott Anderson, managing director and chief U.S. economist, BMO Capital Markets, San Francisco;
• Aditya Bhave, managing director and senior U.S. economist, Bank of America Securities, New York;
• Ryan James Boyle, SVP and chief U.S. economist, Northern Trust Corporation, Chicago;
• Augustine Faucher, SVP and chief economist, PNC Financial Services Group, Pittsburgh;
• Michael Gapen, managing director and chief U.S. economist, Morgan Stanley, New York;
• Andrew Hollenhorst, U.S. chief economist, Citibank, New York;
• Peter Hooper, managing director and vice chair of research, Deutsche Bank, New York;
• Bruce Kasman, managing director and chief economist, JPMorgan Chase & Co., New York;
• Simona Mocuta, managing director and chief economist, State Street Investment Management, Boston;
• Olu Omodunbi, SVP and chief economist, Huntington National Bank, Columbus, Ohio; and
• Luke Tilley, EVP and chief economist, M&T Bank/Wilmington Trust, Buffalo, N.Y.