US 2026 Economic and Rates Outlook

While many questions remain about policies, the US heads into 2026 with fewer questions than a year ago. Last year we previewed what was potentially to come under Trump 2.0 and the potential bands for trade policy, fiscal policy, immigration policy, etc. were incredibly wide. Now, while many of these issues are far from settled, we at least know the broad contours of the administration’s preferred policy path in many areas. Despite pockets of weakness, in aggregate, with consumer and business balance sheets still solid, we think the US economy continues to be on firm economic footing. Of course, new questions and hurdles will emerge but with a positive fiscal impulse early in the year, easier monetary policy, and less uncertainty, we think 2026 growth rates will persist on a similar trajectory as we saw this year.  We also lay out our latest US Rates Forecast, where with the Fed expected to cut to 3% in April we see 2yr yields troughing at 3.10% in Q1/Q2 and ending 2026 at 3.40%. For 10yr yields, we see them similarly troughing at 4.15%, in Q1, but ending 2026 closer to 4.60%. In summary, our forecast centers around two main themes: (1) the view that this easing cycle will be somewhat unique to prior easing cycles, with the best analogy being the 2019 “mid-cycle adjustment” versus any other easing cycle since 2000. Using this imperfect analogy, we think the market will be even more hesitant than 2019 to price in significant accommodation, given our expectation for 3%+ inflation throughout 2026. (2) We continue to think long-term US rates should see further injection of term premium due to several underlying fundamental factors, and thus see steeper curves going forward.