What's Driving U.S. Economic Momentum? Fitch's Latest GDP Projections Paint an Optimistic Picture

Fitch Ratings just released updated forecasts for U.S. GDP of USA growth, and the numbers tell an interesting story. The rating agency now expects the American economy to expand by 2.1% this year, a meaningful bump from the 1.8% forecast they issued back in December. Looking ahead to 2026, the outlook gets even more interesting—growth is projected to reach 2.0%, up from the previously estimated 1.9%.

The Backstory Behind the Revision

What triggered this upward revision? The culprit was straightforward: delayed economic data from the government shutdown last year finally hit the books. Once analysts incorporated this missing information, a clearer picture of economic momentum emerged, justifying the stronger growth projections.

Inflation: The Double-Edged Sword

While GDP growth looks solid, inflation tells a trickier tale. The challenge? October’s incomplete data makes current CPI inflation trends murky at best. But here’s what Fitch expects moving forward: inflation will climb to 3.0% by year-end, up from 2.7% in November. Push into 2026, and it gets steeper—the forecast calls for inflation to hit 3.2% by the end of next year, largely driven by delayed tariff impacts working their way through the economy.

Labor Markets Hold Steady Despite Slowdown

Employment growth has cooled lately, but don’t expect it to derail economic expansion. Why? The labor force itself is expanding more slowly, which offsets some of the employment slowdown’s impact. Fitch projects the average unemployment rate will hold around 4.6% in 2026—basically flat compared to current levels.

What About Interest Rates?

Here’s where things get relevant for market watchers: the Federal Reserve is expected to lower rates twice during the first half of 2026. This would bring the federal funds rate upper limit down to 3.25%, signaling a shift toward more accommodative monetary policy as the year progresses.