BNP Eco & Rates Forecasts
US The US economy is expected to grow above its potential in 2026, with an average annual growth rate of 2.2%, close to the 2025 rate (2.1%). This apparent resilience to the uncertainty, tariff and energy shocks, together with above-trend productivity growth, masks K-shaped growth, driven by investment linked to Al-optimism and consumption by the wealthiest amid a wealth effect (historically high stock market valuations). Inflation overshooting is set to continue (3.5% in 2026) at least through 2028, largely because of the rise in oil prices and tariffs - although the impact of these latter appears to be less significant than expected. The labour market is showing clear signs of improvement that should bring the unemployment rate down toward 4.0%. Given this shift in price and employment risks amid dynamic growth, the FOMC proceeded with a first rate hike at September's meeting and we expect two further 25bp increases in December 2026 and January 2027, bringing the Fed Funds target range at 4.25% - 4.50%. FX We expect Fed hikes to temporarily offset structural headwinds and support the dollar. EUR/USD would target 1.14 by end-2026, before the dollar's structural downtrend resumes t
US The US economy is expected to grow above its potential in 2026, with an average annual growth rate of 2.2%, close to the 2025 rate (2.1%). This apparent resilience to the uncertainty, tariff and energy shocks, together with above-trend productivity growth, masks K-shaped growth, driven by investment linked to Al-optimism and consumption by the wealthiest amid a wealth effect (historically high stock market valuations). Inflation overshooting is set to continue (3.5% in 2026) at least through 2028, largely because of the rise in oil prices and tariffs - although the impact of these latter appears to be less significant than expected.
The labour market is showing clear signs of improvement that should bring the unemployment rate down toward 4.0%. Given this shift in price and employment risks amid dynamic growth, the FOMC proceeded with a first rate hike at September's meeting and we expect two further 25bp increases in December 2026 and January 2027, bringing the Fed Funds target range at 4.25% - 4.50%. FX We expect Fed hikes to temporarily offset structural headwinds and support the dollar. EUR/USD would target 1.14 by end-2026, before the dollar's structural downtrend resumes toward 1.20 by end-2027, although political and fiscal risk may weigh on the euro next year.
The USD/JPY appreciation would continue but at a more moderate pace, with the BoJ still behind the curve despite its hikes. By contrast, GBP/USD would see relative support underpinned by a modest fiscal risk premium under the new Labour government, and resilient growth.