Monthly Economic Outlook
Economic forecast: September 2026 trends and analysis
Macroeconomic insights and outlook from the U.S. Bank Economic Research Group to help guide your business strategy
September 2026
Economic outlook at a glance
A new engine
Our September 2026 U.S. economic outlook continues to point to an economy expanding at a solid pace despite a range of geopolitical, structural, and policy-related headwinds. While second-quarter GDP growth remained at a modest 1.5% annualized rate, upward revisions to consumer spending and continued strength in business investment suggest underlying demand remains firmer than the headline figure implies. AI-related investment and productivity gains continue to provide an increasingly important source of support, offsetting weakness in more interest-rate-sensitive sectors and helping keep the expansion on track. Job gains from the BLS (Bureau of Labor Statistics) blew estimates out of the water with a strong 162,000 jobs gained in August. The unemployment rate held at 4.1%, but with people getting jobs and even more people entering the jobs market. That’s a good combination. With economic activity proving more resilient than many anticipated, the focus has increasingly turned from growth risks to whether inflation can continue moving sustainably toward the Federal Reserve's 2% objective.
Looking ahead, our baseline forecast continues to call for growth near its long-run potential pace. The central question is no longer whether the economy can withstand higher interest rates, but whether inflation can continue moving lower while demand, investment and productivity remain unusually resilient. Although inflation has eased considerably from its peak, recent developments suggest the final stretch back to price stability may prove slower and less predictable than previously anticipated. As a result, we continue to expect the Federal Reserve to raise the policy rate by 25 basis points in September and remain focused on preserving price stability until inflation shows clearer signs of returning sustainably toward target.
Key takeaways:
Growth: Real GDP growth will likely be 2.1% on a fourth-quarter-over-fourth-quarter basis (Q4/Q4) in 2026 (2.2% annual average) and 2.1% Q4/Q4 in 2027 (2.2% annual average). While slowing labor-force growth and restrictive monetary policy continue to present headwinds, resilient consumer demand, strong AI-related investment, and improving productivity will keep economic growth near its long-run potential.
Labor market: We expect the unemployment rate to average 4.3% in both 2026 and 2027, reflecting a broadly balanced labor market despite slower hiring. Historically low layoffs and slower labor-force growth should help keep unemployment relatively stable.
Inflation: Inflation has shown recent signs of improvement, but progress toward the Federal Reserve's 2% objective remains gradual and uneven. We expect core Personal Consumption Expenditures (PCE) inflation to average 3.3% year-over-year in the second half of 2026 before moderating to 2.1% by the end of 2027, though the final stretch back to target may prove bumpier than previously expected.
Federal Reserve: Resilient economic activity and lingering inflation pressures have reinforced policymakers' focus on price stability. As a result, our baseline forecast still includes a 25-basis-point rate hike in September, followed by an extended pause as officials assess incoming data.
Risks
We maintain a 25% probability of recession over the next 12 months. While resilient consumer spending, strong AI-related investment, and a stable labor market continue to support growth, they may also slow the return of inflation to target. As a result, persistently higher inflation, additional monetary policy tightening, rising long-term interest rates tied to federal debt concerns, and a retrenchment in AI-related investment remain key risks to the outlook.
Macroeconomics forecast at a glance
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September 2026 Report
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Sources: U.S. Bank Economics, Bloomberg, Yale Budget Lab, U.S. Bank Economics calculation
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U.S. Bank Economic Research Group
Beth Ann Bovino
Chief Economist
Ana Luisa Araujo
Senior Economist
Matt Schoeppner
Senior Economist
Adam Check
Economist
Andrea Sorensen
Economist
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