US GDP Growth Outlook Brightens: What Fitch's 2025-2026 Projections Mean for Markets

bridge_anxiety · 2026-01-12T20:32:51+00:00

Fitch Ratings has positively revised its US GDP growth forecasts, projecting 2.1% growth in 2025 and 2.0% in 2026. Despite challenges from inflation, the labor market is expected to stabilize, with the Fed likely cutting interest rates to support growth.

bridge_anxiety

2026-01-12 20:32:51

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Fitch Ratings has released an optimistic reassessment of US GDP growth trajectories, signaling stronger economic momentum ahead. The rating agency’s updated projections for the coming two years paint a more resilient picture than previously expected, driven by revised economic datasets that account for delayed information from last year’s government shutdown.

Inflation Headwinds: The Central Challenge

The inflation narrative remains complex. With incomplete October data making near-term CPI trends difficult to assess, Fitch estimates that price pressures will intensify before moderating. The agency forecasts inflation climbing to 3.0% by year-end 2025, up from November’s 2.7% reading. This upward trajectory continues into 2026, with inflation expected to reach 3.2% as delayed tariff impacts flow through the economy—a dynamic that could create volatility across risk assets.

Upgraded US GDP Growth Projections

The core positive revision centers on US GDP growth expectations. Fitch now anticipates 2.1% growth in 2025, a meaningful improvement from its December projection of 1.8%. For 2026, the forecast has similarly been raised to 2.0%, up from the prior 1.9% estimate. These upgrades reflect the agency’s confidence in economic resilience despite persistent headwinds, though growth remains moderate compared to historical norms.

Labor Market and Monetary Policy Implications

Employment dynamics present a nuanced picture. While job creation has slowed, this deceleration may be partially offset by declining labor force growth rates. Fitch projects the average unemployment rate to settle at 4.6% in 2026, broadly consistent with recent levels—suggesting the labor market will stabilize rather than deteriorate significantly.

The Federal Reserve’s policy response will be critical. The central bank is expected to implement two interest rate cuts during the first half of 2026, with the federal funds rate upper band declining to 3.25%. This measured easing will likely provide support to growth while attempting to manage inflation risks—a balancing act that will shape investor sentiment and market performance throughout the forecast period.

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