TD Securities strategists Oscar Munoz and Eli Nir project that US output growth will gradually slow to its potential by late 2026, as stagflationary risks stemming from the Iran conflict keep the Federal Reserve cautious in its policy approach [1]. They forecast US Gross Domestic Product (GDP) growth to return close to potential, with a 1.9% Q4/Q4 increase in 2026, and the unemployment rate stabilizing near 4.3% by the end of that year [1].
The strategists note that the Iran conflict has introduced stagflationary risks, which are expected to keep the Fed on hold for most of the current year [1]. However, larger tax refunds could provide some relief to consumers facing higher gasoline prices [1]. Growth is anticipated to be front-loaded due to a rebound in government consumption following a shutdown, but should normalize thereafter [1].
On the inflation front, higher energy prices and persistent tariffs are expected to boost consumer prices in the near term, with core Consumer Price Index (CPI) inflation peaking at 3.0% year-over-year in Q2 2026; similar trends are expected for core Personal Consumption Expenditures (PCE) [1]. Most of the impact from higher oil prices is projected to affect headline inflation, but disinflation is expected to resume in the second half of 2026 [1].
TD Securities assigns a 30% probability to a US recession over the next year, reflecting ongoing uncertainties but not a base-case scenario [1].
CONCLUSION
TD Securities anticipates US growth to normalize by 2026 as the effects of the Iran conflict fade, with inflation peaking mid-2026 before resuming a downward trend. The Federal Reserve is expected to remain cautious, and recession risks are present but not dominant. Overall, the outlook is for moderate growth and inflation stabilization.