The American Bankers Association's Economic Advisory Committee expects the U.S. economy to continue expanding at a solid pace through the remainder of 2026 and into 2027, even as inflation remains above the Federal Reserve's 2% target. The committee, composed of chief economists from some of North America's largest banks, projects real GDP growth of 2.7% in the third quarter of 2026, 2.2% in the fourth quarter, and 2.2% in 2027. The forecast matters because it suggests the expansion can persist without a sharp downturn, despite persistent price pressures driven by higher oil prices and services inflation.
The growth outlook rests on two pillars: steady consumer spending and robust business fixed investment. Business investment is expected to grow by 6.7% in the second half of 2026 and by an additional 4.5% in 2027, with investment in data centers and related technology equipment identified as the primary driver. On inflation, the committee projects the core personal consumption expenditures index—the Fed's preferred measure excluding food and energy—will reach 3.3% in the fourth quarter of 2026 before slowing to a still-elevated 2.4% in 2027. The forecast is premised on West Texas Intermediate crude oil remaining around $90 per barrel in Q4 2026 before declining in 2027.
The committee's labor market assumptions help explain how above-target inflation can coexist with solid growth. Productivity growth is expected to strengthen to a robust 2% pace over the coming year, allowing the unemployment rate to remain stable at about 4.2%. Beth Ann Bovino, committee chair and chief economist at U.S. Bank, said slower labor-force growth from demographic developments has reduced the "breakeven" pace of job creation needed to maintain labor market balance. "Economic growth and labor market conditions remain resilient enough to withstand underlying inflation pressures," Bovino said.
The rate and housing outlooks carry distinct implications for markets and sectors. Following last week's Federal Reserve rate increase, the committee expects an additional federal funds rate hike in the fourth quarter of 2026, with the Fed then remaining on hold next year—though persistent inflation raises the risk of further hikes. Higher interest rates are expected to weigh on housing activity, with mortgage rates projected to remain above 6.8% over the next year. Home prices are forecast to increase 1.8% next year, and residential investment is expected to remain sluggish. Bovino noted that the mortgage lock-in effect for many existing homeowners, high mortgage rates, and high home prices may improve inventory, but broader housing affordability challenges will weigh on home sales activity.
The forecast's main limitation is that it comes from a single source—the ABA Banking Journal's summary of the committee's projections—without independent corroboration of the underlying data or alternative forecasts. The committee's outlook is also conditional on oil prices declining in 2027; if WTI crude stays near $90 per barrel or rises further, inflation could prove stickier than projected and prompt additional Fed tightening. What to watch includes the path of core PCE inflation relative to the 2.4% 2027 projection, the durability of data center and technology investment, and whether housing affordability pressures spill over into broader consumer spending.