TD Securities projects that US economic output growth will remain sideways in 2026, with Real Gross Domestic Product (GDP) expected to reach 2.0% on a Q4/Q4 basis, which is slightly below trend levels [1]. The firm forecasts the unemployment rate to be around 4.3% by the end of 2026, reflecting a labor market that has stabilized but faces uncertainty due to rising input costs from an oil shock and ongoing geopolitical tensions, particularly the Iran conflict [1].
The report highlights that the Iran conflict and the resulting oil shock pose stagflationary risks, which are expected to keep the Federal Reserve on hold for the entire year [1]. Despite these headwinds, underlying growth has been supported by advances in artificial intelligence (AI) and robust demand from high-income consumers [1]. TD Securities assigns a 25% probability to a US recession over the next year, citing continued uncertainty from supply chain stresses and geopolitical developments [1].
On the inflation front, TD Securities anticipates that core Consumer Price Index (CPI) inflation will peak near 3.0% year-on-year in Q4 2026, with core Personal Consumption Expenditures (PCE) inflation also remaining elevated [1]. The firm does not expect substantial disinflation in 2026, as most of the impact from higher oil prices will be reflected in headline inflation figures [1]. Gradual disinflation is projected to resume in 2027 [1].
The outlook remains fluid, with TD Securities emphasizing that further escalation of geopolitical conflicts, developments in financial markets, and the execution of new trade, fiscal, regulatory, and immigration policies by the Trump administration are key risks that could affect their economic projections [1].
CONCLUSION
TD Securities forecasts subdued US growth and persistent inflation through 2026, driven by geopolitical risks and oil shocks. The Federal Reserve is expected to remain on hold, with only gradual disinflation anticipated in 2027. Market participants should remain alert to evolving geopolitical and policy developments.