What Fitch's Updated GDP Growth Forecasts Mean for Markets in 2025-2026

Fitch Ratings just released revised economic projections that paint a more optimistic picture for U.S. GDP growth than previously expected. The rating agency now sees 2025 expanding at 2.1% instead of the earlier 1.8% estimate, while 2026 GDP growth is projected at 2.0%, up from 1.9%. These upward revisions reflect newly available economic data that was delayed during last year’s government shutdown, giving markets a clearer view of the current trajectory.

The Inflation Challenge Ahead

However, the growth story comes with an inflation asterisk. Fitch expects price pressures to accelerate, with the inflation rate climbing to 3.0% by year-end 2025 compared to 2.7% in November. By end-of-2026, inflation could reach 3.2%, primarily driven by tariff impacts that will take time to fully ripple through the economy. The incomplete October data makes near-term CPI trends harder to read, but the trend direction appears clear.

Labor Market Holding Steady Despite Slowdown

While employment growth has decelerated, the labor market isn’t facing a crisis. The key insight: declining labor force growth is expected to offset the employment slowdown, keeping upward wage pressure in check. Fitch projects the unemployment rate will average 4.6% in 2026, remaining close to current levels and suggesting a relatively balanced labor market throughout the forecast period.

Fed Rate Cuts on the Horizon

Looking at monetary policy, the Federal Reserve is expected to implement two interest rate cuts during the first half of 2026, bringing the federal funds rate ceiling down to 3.25%. This represents a measured policy normalization that acknowledges both growth momentum and lingering inflation concerns. For investors watching rate-sensitive assets, this timeline could shape positioning in the months ahead.