United States Economic Forecast 2026–2030
AI-driven investment may help support near-term economic momentum even as households and non-AI businesses continue to face headwinds from tariffs, labor constraints, and uncertainty
Since the last edition, we have continued to see a rapidly changing global economic and policy environment and recognize that conditions remain highly fluid. So, the three forecast scenarios we present are not meant to be precise estimates of where the US economy will end up. Instead, they are built on explicit assumptions to help guide thinking on the future.
Our baseline forecast reflects our best assessment of the path economic variables could take. Our downside and upside scenarios reflect plausible alternatives for the US economy should our assumptions prove to be overly optimistic or pessimistic, respectively.1
Scenarios
Baseline
We assume the average US tariff rate rises from about 9% at the time of writing to 12% as the country implements more tariffs and importers increasingly rebuild their inventories with goods. The actual tariff rate will likely fluctuate amid new court rulings, tariff policy changes, and a new administration in 2029. We expect net international migration of 321,000 per year to persist through the end of 2030. This is in line with the US Census Bureau’s estimate of net migration for 2026,2 and is significantly lower than the 2.4 million recorded in 2024.3 Finally, we assume that investment in artificial intelligence remains relatively strong but does not lead to a large increase in economywide productivity growth until after 2030.
AI is already having a sizable effect on the economy. In the baseline, we have increased the level of business investment compared with our December 2025 forecast. This reflects the sizable capital expenditure plans that AI “hyperscalers” have announced for this year.4 We now expect real business investment to grow by 4% in 2026—an acceleration from the second half of 2025.
Although hyperscalers are raising their investment plans, business surveys5 show that many other companies are far more hesitant to spend. Elevated interest rates, rapidly rising input costs, and policy uncertainty are likely contributing to this hesitancy. Furthermore, even investment in data centers, while still strong, is slowing from a growth standpoint.
Similarly, real consumer spending is expected to be stronger in the near term, thanks to AI-driven gains in equity prices. This positive wealth effect helps explain why aggregate consumer spending has grown at a faster rate than aggregate wages. However, we expect spending to better align with wage growth as consumers face significant headwinds.
Tariffs have increasingly shown up in consumer prices—a trend we expect to continue in the coming quarters—further eroding purchasing power as nominal wage growth moderates. Elevated energy prices are also expected to contribute to higher inflation, though we assume that energy prices begin to decline again by the fourth quarter of this year across all three scenarios. The fall in immigration is also expected to weigh on consumer spending growth, and hence, real consumer spending is projected to slow to 2.1% in 2026 from 2.7% in 2025.
Despite the moderation in consumer spending, real gross domestic product is expected to grow a healthy 2.2% in 2026. This is largely due to stronger data in 2025. Mathematically, the strong growth at the end of 2025 puts upward pressure on the growth rate in 2026. By 2030, real GDP growth is expected to shift to its potential rate of about 1.7%.
Downside: AI goes from boom to bust
Our downside scenario maintains the same tariff and immigration assumptions as the baseline. However, it assumes that AI investment gets overdone, leading to a sharp pullback in business spending in 2027 as companies reassess potential demand for related products. Real business investment is expected to decline by 3.2% in 2027 and another 0.7% in 2028—representing a sharper decline than in our December forecast. Companies are increasingly tapping financial markets to fund AI-related investments, which could create negative spillover effects should they be unable to repay their debt.
Although the contraction in business investment is significant, it is smaller than those seen in previous recessions. The peak-to-trough decline in our downside scenario is approximately 60% of the decline following the dot-com bust and about 40% of that seen during the Great Recession. Businesses unrelated to AI have already tightened their belts, which should help limit further declines. Additionally, the depreciation cycle for many of the components of AI-related investments is likely much shorter than it was for fiber-optic cables during the telecom boom in the late 1990s. Rising obsolescence of existing AI infrastructure will likely force companies to make new investments just to maintain existing capabilities, which could drive more spending to prevent moving further from the technological frontier.
We expect stock prices to fall roughly 10% from peak to trough. This brings price-to-earnings ratios to less optimistic levels than those seen recently. This sudden drop in wealth has an outsized effect on consumer spending, which has been heavily dependent on top earners who are likely more influenced by changes in their financial portfolios. As a result, we expect real consumer spending to grow by just 0.2% in 2027 and to fall by 1% in 2028.
The weakening of domestic demand raises the unemployment rate to 6.5% in 2028 and provides a stronger disinflationary impulse, allowing growth in core personal consumption expenditure (PCE) prices to dip below the Fed’s 2% target by the end of 2027, before returning to 2% by 2030. The midpoint of the federal funds rate drops below 1% by the end of 2027. Real GDP is expected to decline by 0.4% in 2027 and 1% in 2028. A stronger recovery is expected in 2029 and 2030.
Upside: The AI investment boom endures
We assume an average tariff rate of about 5% by year-end as more exemptions are made. We also assume stronger net migration, with the adult population standing around 860,000 higher than in the baseline by 2030. Business investment, driven by AI, is expected to grow stronger than the baseline sustainably. AI-related productivity gains are expected to show up in the data in 2027.
Lower tariffs help limit the inflationary impulse from stronger business investment and higher net migration. However, we still anticipate a slightly stronger near-term inflationary impulse. This is expected to delay the Fed from lowering interest rates in 2026, prompting it instead to make its next cut in 2027. Aggregate consumer spending remains relatively strong, supported by faster population growth and ongoing gains in equity markets. As the labor market tightens and productivity growth picks up, real wage growth also strengthens, giving spending an additional boost.
Although aggregate business investment is expected to strengthen, its growth is expected to be uneven. Elevated long-term interest rates will restrain investment in some sectors, especially those that have little to do with AI. However, lower tariff rates also reduce input costs, particularly for capital-intensive businesses, which should help some firms to better overcome elevated financing costs.
Sectors
Labor market
The US labor market remains relatively weak. Average monthly nonfarm payroll gains stood at just 14,000 during the six months to January—far below the average gain of 122,000 recorded in 2024. The rapid decline in net migration is likely the main cause. With net migration at just 321,000 in 2026, we now expect the working-age population to decline modestly throughout the forecast period. This means that labor force participation will need to be higher to maintain positive employment growth. However, the participation rate for this age group is already at its highest level since 2008.
Although aggregate employment growth has slowed, the unemployment rate has begun to stabilize. After rising to 4.5% in November 2025, the unemployment rate stood at 4.4% in February 2026, exactly where it was five months earlier. The negative labor supply shock from a drop in net migration means that the unemployment rate can hold steady with far fewer employment gains. We expect the unemployment rate to see a small uptick before falling again at the end of 2026.
The participation rate has been revised higher through 2028, allowing employment growth to continue. One of the largest weights on employment growth recently has been the federal government. Although we expect federal government employment to remain a drag on growth this year and next, the sharp drop in federal payrolls in October 2025 is unlikely to be repeated, suggesting that the drag will moderate moving forward.
Meanwhile, private-sector payroll growth has been relatively stronger, averaging 34,000 per month in the last six months, although this is down from an average of 85,000 in 2024. A large share of the employment growth has been concentrated in health care and social assistance, but private-sector employment growth has improved even when excluding this industry.
Private sector wage growth remained at 3.9% year over year for the last three quarters of 2025. However, wage growth moderated slightly at the start of this year. We expect wage growth to continue to moderate, albeit slowly, this year as persistent inflation and a dearth of low-paid immigrant workers put upward pressure on wages.
Government policy
The federal deficit is expected to remain above 6% of GDP through 2030, exceeding the Congressional Budget Office’s (CBO) baseline expectation.6 The larger expected deficit is partially due to our lower forecast for net migration. The CBO’s analysis of the immigration surge beginning in 2021 shows that immigrants reduce the federal deficit. Tariff-related revenues7 may end up being smaller than the CBO forecast. A Supreme Court ruling invalidated some of the recently implemented tariffs, suggesting that the federal government will likely have to repay more than US$130 billion in collected tariff revenues.8
Although the increase to the federal deficit is expected to be substantial, the economic effects will likely be more muted. A large part of the deficit comes from rising interest expense,9 which is less stimulative than a deficit that comes from tax cuts or spending increases alone. In addition, the largest new tax cuts in the One Big Beautiful Bill Act apply to tipped and overtime income, which primarily affects workers in the middle to lower end of the income distribution. However, the stimulative nature of these tax cuts is expected to be partially offset by reductions in Medicaid and food assistance spending, which affect many of those same workers.10
Prices
Inflation accelerated at the end of 2025, with the headline PCE price index rising 2.8% from a year earlier in the fourth quarter, up from 2.7% in the previous quarter and 2.4% in the second quarter. After excluding food and energy, this measure of inflation held at 2.9% in the fourth quarter. Although the consumer price index (CPI) moderated at the end of last year, the lower reading was due to the imputation of uncollected data during the government shutdown, which biased CPI inflation downward.
The outlook for inflation remains highly uncertain, particularly as energy markets remain volatile amid supply disruptions. We expect the PCE price index to average 2.9% this year as a sharp rise in energy prices causes inflation to accelerate in the near term. However, we anticipate that inflation will ease to 2.1% in 2027.
Companies are attempting to reclaim tariffs they paid after the Supreme Court ruled that the tariffs imposed under the International Emergency Economic Powers Act are impermissible.11 Because we expect companies to recoup those funds, they are also likely to be more restrained in the near term when passing tariff costs on to consumers. However, we expect inflation to remain above the Fed’s 2% target for longer than we anticipated in December, as the US tariff regime continues to be in flux.
In addition to the inflationary impulse from tariffs, inflation expectations could also push inflation higher. After rising in mid-2025, most measures of inflation expectations have declined. In February, the New York Fed’s survey of consumer expectations reported a median three-year-ahead expected inflation rate of 3%, unchanged from one year earlier. The University of Michigan’s survey of inflation expectations in five years was 3.2% in March, down from 4.1% one year earlier.12
Foreign trade
The tariff landscape continues to evolve. On Feb. 20, 2026, the US Supreme Court determined that the International Emergency Economic Powers Act did not authorize the administration to implement tariffs. Although this initially lowered the average tariff rate, we expect it to rise to 12% as the administration uses other statutes to impose new tariffs. US companies that held off on importing goods will have to replenish their drawn-down inventories, which will apply additional upward pressure on average tariff rates.
The other major source of trade uncertainty is the renegotiation of the United States-Mexico-Canada Agreement by the United States, Canada, and Mexico later this year. We acknowledge that the trade agreement could vary substantially from its current form. However, we will not speculate on the complicated process of the negotiations and will maintain our current tariff assumptions until we have greater clarity on the outcome.
Goods trade was incredibly volatile last year as importers and exporters adjusted their activities in response to tariffs. As a share of GDP, the goods trade deficit narrowed modestly in 2025 compared with 2024. After narrowing further in 2026, we expect the deficit to widen slightly each year through 2030. Although tariffs raise the cost of imports, they also raise the cost of exports. Indeed, the export price index is rising quickly. With the federal budget deficit continuing to widen as a share of GDP, and without a major reduction in debt elsewhere in the economy, the United States will continue to consume more than it produces, thereby raising the trade deficit.
Financial markets
The Federal Reserve delivered three quarter-point interest rate cuts in the second half of last year. With inflation moving higher throughout the first half of this year, we expect the Fed to hold rates steady until December. A second and final rate cut is expected to come in the first quarter of 2027. Although the next Fed chair will likely be more dovish than the outgoing one, this is unlikely to change the majority vote of the Federal Open Market Committee.
Despite the cuts to short-term interest rates, we do not expect longer-term interest rates to move substantially lower. A widening federal budget deficit is expected to discourage investors from accepting lower compensation for lending their money to the US government. Policy uncertainty also remains high, which raises the risk premium on government bonds. This dynamic limits the stimulative effect of the Fed’s monetary easing. Notably, the 30-year fixed mortgage rate is not expected to fall below 5.8% before the end of 2030, limiting a key transmission channel of monetary policy.
Stock markets have shown considerable strength, with the S&P 500 stock price continuing to grow at double-digit year-over-year rates at the time of this writing.13 Optimism around the potential of AI has boosted earnings and raised expectations of future growth. With price-to-earnings ratios still quite high and investors becoming cautious about AI investments, we expect equity price gains to moderate a bit this year. Equity price growth has likely fueled consumer spending over the last few quarters, particularly at the higher end of the income and wealth distribution. Slower equity price gains this year are likely to result in softer consumer spending growth.
Appendix
By
Michael Wolf
Editorial (including production and copyediting): Arpan Saha, Sayanika Bordoloi, Pubali Dey, and Anu Augustine
Design: Govindh Raj, Harry Wedel, and Rahul Bodiga
Cover image by: Rahul Bodiga
Knowledge Services: Agni Wagh
Visit the Deloitte Global Economics Research Center
Access more insights for the consumer spending, housing, business investment, globalization & international trade, fiscal & monetary policy, sustainability, equity, & climate, labor markets and prices & inflation sectors.