The economic outlook for the United States has darkened. IHS Markit and other experts have changed their predictions for inflation and GDP growth downwards. That said, analysts do expect that headline inflation will settle at 2.8% in 2025 rather than the previous forecast of 3.0%. For 2026, the prediction calls for an additional drop to 2.6%. Such moves are a direct response to mounting concern over the detrimental effects of protracted trade conflict on the U.S. economy.
Aside from the CPI inflation projections, the core inflation forecasts continue to be a source of fixation. The projected core inflation rate for 2025 is set to remain at 3.0%, the same as previous projections. Predictions for 2026 indicate even more growth on the way. In-core inflation forecast to increase to 2.8%, from the previously projected 2.4%. This divergence in core inflation expectations is a sign of deeper, underlying pressures on the economy.
The outlook for GDP growth over the next several years has suffered a serious blow. The AAA credit downgrade underscores the ongoing burdens exacerbated by the trade war. Likewise, the estimate of GDP growth in 2025 is down to 1.6%. This is a huge drop from the recently reported 2.3% estimate. Now for 2026, GDP growth is forecast to drop even lower—to 1.3%, down from the previous estimate of 1.9%. These amendments all point to an economic boom that will likely be weaker than earlier expected.
Predictably, analysts are blaming the trade war as the cause for these downward revisions. They particularly look for the most serious of these impacts to get worse during the third and fourth quarters of 2025. The uncertainty surrounding trade policies and tariffs is likely to dampen consumer and business confidence, resulting in reduced spending and investment.
Despite these challenges, we see some encouraging signs that recovery is on the way. Gradual sequential growth is expected to kick in starting in the first quarter of 2026. If this recovery continues, it might indicate that businesses are finding their footing in the new trade environment and working to normalize their business.
The current economic environment underscores the importance of monitoring inflation and growth trends as policymakers consider measures to mitigate the impact of trade-related disruptions. The Federal Reserve and other economic authorities will have to change their approach in light of these changing realities.