Monthly Economic Outlook

Economic forecast: January 2026 trends and analysis

Macroeconomic insights and outlook from the U.S. Bank Economics Research Group to help guide your business strategy

January 2026

6-min read

Exterior view of the U.S. Capitol building with dark clouds

Economic outlook at a glance

Ringing in resilience

Our January 2026 U.S. economic outlook highlights an economy still expanding – Q3 growth accelerated on strong services and early holiday demand – while the labor market’s ‘low‑hire, low‑fire’ equilibrium masks mounting slack as unemployment drifts higher. Inflation is cooling with caveats, as shutdown-related distortions likely understated the Consumer Price Index (CPI), and shelter normalization should briefly lift core Personal Consumption Expenditures (PCE) before its gradual glide toward 2%. The Fed delivered a hawkish cut in December and is poised to pause in January, preserving optionality amid data gaps and payroll‑measurement risks.

Against this backdrop, our K‑shaped economy framework underscores widening dispersion across households and firms – supporting steady consumption at the top even as mid‑to‑lower tiers face tighter conditions. Overall, we see modest but sustained growth into 2026, conditional on cleaner inflation prints and labor revisions. Risks remain skewed to the downside given policy uncertainty in fiscal, trade and immigration.

Download the complete report (PDF)

Key takeaways:

Growth: Economic activity remains broadly intact, supported by resilient consumer spending and steady business investment. Despite a year marked by policy uncertainty, we expect 2025 growth to finish near 2.2%. As uncertainty fades and fiscal support builds, our 2026 forecast has been revised up to 2.5%, signaling modest but sustained expansion.
Labor market: Labor market stability masks growing slack. Hiring has stalled, with cumulative payroll gains nearly flat since April. The unemployment rate ended 2025 at 4.4%, while average hourly earnings rose 3.8% year-over-year. We expect joblessness to drift into the upper 4s by mid-2026 – close to triggering the Sahm Rule – on weak hiring rather than broad layoffs.
Inflation: Inflation cooled sharply in November, on technical distortions, not the economy. Headline CPI fell to 2.7% and core to 2.6%, but quirks tied to the shutdown and shelter imputation likely overstated the slowdown. We expect core PCE to hover near 2.8–2.9% through early 2026, with a temporary uptick midyear before gradually converging toward the Fed’s 2% target by late 2027.
Federal Reserve: The Fed delivered another 25-basis point (bp) cut in December, lowering rates to 3.50–3.75% and signaling a more data-dependent stance. With the Committee deeply divided and Chair Jerome Powell cautioning that payroll gains may be overstated, we expect a January pause and two additional cuts in 2026 – likely June and December – bringing the terminal rate to 3.00–3.25%.

Risks

Risks remain skewed to the downside, with near‑term recession probability holding near 35%. A monetary policy mistake is at the top of our list. Though geopolitical/oil price risk has now entered the fray. Policy uncertainty across fiscal, trade and immigration continues to cloud the outlook. Another federal funding lapse at month‑end would lead to another shutdown when the federal government and economic data try to regain footing.

Macroeconomics forecast at a glance

Produced by the U.S. Bank Economics Research Group, our in-depth economic forecast examines the trends and economic indicators shaping business decisions this year and into the future.

Table displaying U.S. Bank Economics Group macro forecasts for GDP, spending, housing, unemployment, and price indexes from 2024 to 2027. The table outlines projected trends from the U.S. Bank Economics Group, highlighting anticipated GDP growth rates, variations in consumer spending, and changes in residential housing activity. It also includes forecasts for unemployment levels and inflation, as reflected in key price indexes, providing a comprehensive view of expected economic conditions from 2024 to 2027. — Forecast as of January 6, 2026. Sources: U.S. Bank Economics, Moody's Analytics, and Bloomberg. 1. Projections for real GDP are annual percent change. Projections for housing starts in millions, annualized. Projections for the unemployment rate represent annual averages. 2. Projections for the CPI and Core PCE are annual percent change; 3. Interest rate projections represent annual averages, and are the views of the U.S. Bank Economics Research Group.

January 2026 Report

Go beyond the highlights. Download the full monthly forecast for a comprehensive view of the economy, including all supporting data tables, charts and insights from the U.S. Bank Economics Research Group.

View full report (PDF)

Get more business-focused economic analysis

For additional insights, see our weekly economic highlights and Chief Economist Beth Ann Bovino’s latest economic commentary.

If you have questions about any of the topics above or want to learn more, please contact us to connect with a U.S. Bank corporate and commercial banking expert.

Not currently a subscriber? Sign up to get our economic insights delivered to your inbox weekly.

Sources: U.S. Bank Economics, Bloomberg, Yale Budget Lab, U.S. Bank Economics calculation

Disclosures

The views expressed in this commentary represent the opinion of the author and do not necessarily reflect the official policy or position of U.S. Bank. The views are intended for informational use only and are not exhaustive or conclusive. The views are subject to change at any time based on economic or other conditions and are current as of the date indicated on the materials. It is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice. It is issued without regard to any particular objective or the financial situation of any particular individual. It is not to be construed as an offering of securities or recommendation to invest. It is not for use as a primary basis of investment decisions. It is not to be construed to meet the needs of any particular investor. It is not a representation or solicitation or offer for the purchase or sale of any particular product or service. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned. U.S. Bank and its representatives do not provide tax or legal advice. Each individual's tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.