Monthly Economic Outlook
Economic forecast: April 2026 trends and analysis
Macroeconomic insights and outlook from the U.S. Bank Economics Research Group to help guide your business strategy
April 2026
Economic outlook at a glance
Waiting on the world to change (again)
Our April 2026 U.S. economic outlook centers on an economy facing a renewed energy shock at a time when inflation has not yet fully returned to target and growth momentum is cooling. The sharp rise in oil prices following escalating Middle East tensions is lifting headline inflation and weighing on purchasing power. Even so, the U.S. economy is far more insulated from energy shocks than in past cycles, making slower growth – rather than recession – the most likely near‑term outcome unless prices rise materially further. All else being equal, the U.S. economy is expected to avoid recession if average oil prices remain sustainably below $130 per barrel.
The greater risk lies in persistence. Supply uncertainties tied to the Strait of Hormuz have pushed oil futures above pre‑conflict levels, increasing the likelihood that higher energy costs bleed into core inflation through transportation, goods and services. Against a backdrop of stall‑speed hiring, sticky services inflation, and renewed firmness in goods prices, this shock reinforces the Federal Reserve’s current wait‑and‑see posture. Policymakers appear prepared to tolerate slower growth to safeguard inflation credibility, with the labor market serving as the key swing factor. This argues for rates to remain on hold unless inflation reaccelerates convincingly or employment conditions weaken more decisively. Recent better‑than‑expected March Bureau of Labor Statistics (BLS) jobs data gives the Fed additional room to be patient.
Key takeaways:
Growth: We forecast above‑consensus real GDP growth of 2.3% on an annual‑average basis (2.2% quarter-over-quarter) in 2026, reflecting a sustained increase in oil prices tied to Middle East tensions that we estimate will shave roughly 0.3–0.4 percentage points from year-ahead growth, relative to our March baseline. Household spending softens as higher energy costs weigh on real incomes, but fiscal support, AI‑related capex, and continued productivity gains help keep the expansion from stalling.
Labor market: Labor conditions are still expected to soften only modestly. While the unemployment rate stood at 4.3% through March, we now expect it to edge up closer to 4.6% by year‑end 2026, a tick higher than in our March outlook. Recent jobs data suggest payroll growth has steadied, reinforcing a picture of low hiring but limited layoffs. Together, these dynamics point to ongoing normalization rather than a sharp deterioration in labor demand – keeping the labor market resilient, but increasingly sensitive to adverse shocks.
Inflation: Estimates indicate core Personal Consumption Expenditures (PCE) eased to 3.0% year-over-year through February, but inflation had not fully returned to target even before the recent energy shock. Firm goods prices alongside uneven services disinflation leave inflation vulnerable to renewed cost pressures, particularly from higher oil prices. We now expect core PCE to rise to about 3.3% by mid‑2026, with inflation not returning to the Fed’s 2% target until 2028.
Federal Reserve: The Fed held rates steady again in March, reinforcing a patient stance as energy‑related upside risks persist. With labor conditions stable but cooling and inflation not expected to return to target until early 2028, economic conditions lead us to now expect two rate cuts in December 2026 and June 2027, leaving the terminal policy rate unchanged at 3.00%–3.25%, but reached later.
Risks
Downside risks have increased, prompting a modest upward revision in our 12-month recession probability to 35% from 30%, reflecting heightened uncertainty tied to the Iran war and the risk that elevated oil prices prove more persistent than expected. While the baseline remains slower growth rather than contraction, the margin for error has narrowed amid pressure on real incomes, tighter financial conditions, and lingering geopolitical and policy risks.
Macroeconomics forecast at a glance
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Sources: U.S. Bank Economics, Bloomberg, Yale Budget Lab, U.S. Bank Economics calculation
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U.S. Bank Economics Research Group
Beth Ann Bovino
Chief Economist
Ana Luisa Araujo
Senior Economist
Matt Schoeppner
Senior Economist
Adam Check
Economist
Andrea Sorensen
Economist
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