U.S. GDP Growth Upgraded: What Fitch's 2025-2026 Forecast Means for Markets

Fitch Ratings has raised its economic projections for the United States, signaling stronger near-term growth but persistent inflation challenges ahead. The ratings agency now forecasts USA GDP expansion of 2.1% in 2025, a notable uptick from its December outlook of 1.8%. Looking further ahead, 2026 growth is projected at 2.0%, compared to the previous estimate of 1.9%.

The Growth Story: Better Than Expected

The upward revision reflects fresh economic data that became available following the government shutdown impacts from late 2024. While the 2.1% growth rate may not seem dramatic, it represents meaningful momentum in the world’s largest economy. The improvement across both 2025 and 2026 suggests Fitch sees resilience in consumer spending and business investment, despite ongoing headwinds.

Inflation: The Persistent Wild Card

However, stronger growth comes with a caveat—price pressures are expected to resurface. Fitch estimates CPI inflation will climb to 3.0% by year-end 2025, up from November’s 2.7%. This upward drift is expected to continue into 2026, with inflation reaching 3.2% by the end of that year. The agency attributes much of this rise to delayed tariff effects still working through the economy, suggesting trade policy remains a key variable to watch.

Labor Market Stays Stable Despite Cooling

Employment growth is slowing, but Fitch sees this offset by declining labor force participation. The unemployment rate is projected to average 4.6% in 2026, staying close to current levels. This relatively stable labor market backdrop provides some insulation against deeper economic stress, though wage pressure will likely remain moderate.

The Fed’s Next Move: Two Rate Cuts Expected in H1 2026

Against this backdrop, Fitch expects the Federal Reserve to cut rates twice in the first half of 2026, bringing the federal funds rate upper limit down to 3.25%. This easing cycle reflects confidence that inflation will stabilize, even as USA GDP growth remains respectable. The dual rate cuts signal the Fed’s intent to support growth while managing inflation—a delicate balancing act that markets will be scrutinizing closely.