TD Securities strategists expect United States output growth to move sideways in 2026, with their Gross Domestic Product tracker pointing to 2.5% quarter-on-quarter annualized and full-year growth remaining slightly below trend at 2.1% on a Q4-over-Q4 basis. They anticipate that the unemployment rate will hold at a still-low 4.3% by late 2026, but they have issued warnings that Iran-related oil shocks and elevated input costs introduce notable stagflationary and recessionary risks.
Economic Output and Federal Reserve Policy Outlook
Strategists note that output growth is expected to move sideways over the course of the year, reflecting the lingering transmission effects of the oil shock. The ongoing conflict involving Iran introduces distinct stagflationary risks, which experts believe will compel the Federal Reserve to keep interest rates on hold throughout the entire year. At the same time, artificial intelligence adoption and spending by high-income consumers have continued to provide underlying support to broader economic growth.
GDP growth is projected to remain slightly below trend through 2026, finishing the year at 2.1% Q4/Q4. This stable economic pace should result in an unemployment rate of 4.3% by the final quarter of 2026. While the labor market has signaled recent stabilization and that trajectory is anticipated to persist, rising input costs stemming from the oil shock generate additional uncertainty that could ultimately weigh on corporate hiring decisions. Overall, analysts assign 25% odds to a United States recession occurring over the next year.
Inflation Trends and Consumer Spending Dynamics
Core Personal Consumption Expenditures inflation is expected to reach the Federal Reserve strike zone for a second consecutive report in July, despite ticking upward to 0.24% month-on-month. Headline prices likely rose by a more moderate 0.15%. More importantly, the market-based core PCE is anticipated to remain contained at 0.13% month-on-month.
In a separate development, weak retail sales data point toward a slowdown in consumer spending growth, easing to 0.2% month-on-month in July and registering a softer 0.1% increase in real terms. Economists expect a gradual resumption of the disinflationary process heading into 2027.
Currency Markets and Precious Metals Response
In foreign exchange markets, GBP/USD remains in a consolidation phase above the 1.3600 level on Monday following the previous week impressive market rally. The US Dollar has managed to recover ground amid mounting uncertainty surrounding the potential impact of US economic sanctions against Iran on global energy prices, leaving the risk-sensitive currency pair on the backfoot.
Similarly, EUR/USD stays under downward pressure and trades below the 1.1700 threshold after posting strong gains during the prior week. The euro struggles as the US Dollar attempts a tepid recovery following a sell-off that had been triggered by the US Treasury Department altering its bond buyback plan. Meanwhile, market participants maintain a cautious stance while awaiting key economic events and further details regarding the upcoming US sanctions package targeting Iran.
In the commodities sector, Gold (XAU/USD) extends its upward momentum on Monday, building upon the substantial rally witnessed last week in the wake of the US Treasury buyback announcement. The precious metal is currently trading near $4,650, marking its highest level since May. The US Treasury departed from its standard calendar on Wednesday when it announced at 12:32 GMT that it would at least double the size of liquidity support buyback operations across the 10-year to 20-year and 20-year to 30-year sectors, raising the maximum cap from $2 billion per operation to at least $4 billion, effective from September 9 through November 4.
