Monthly Economic Outlook
Economic forecast: March 2026 trends and analysis
Macroeconomic insights and outlook from the U.S. Bank Economics Research Group to help guide your business strategy
March 2026
Economic outlook at a glance
Near trend, not trouble
Our March 2026 U.S. economic outlook highlights an economy that remains near trend, though recent data point to a more fragile balance between growth and labor market momentum than earlier in the year. Late‑2025 GDP weakness largely reflects temporary shutdown effects rather than a deterioration in underlying private demand, and consumers continue to support growth. However, February’s employment report introduced meaningful downside risk to the recent “stable but slow” labor market narrative, with hiring activity softer than expected and unemployment edging higher. While some of the weakness reflects temporary distortions, the report suggests less cushion in the labor market than previously assumed. Inflation progress remains uneven, with core PCE (Personal Consumption Expenditures) still near 3% amid firmer goods prices and sticky services inflation – supporting a cautious Federal Reserve even as labor conditions cool.
Geopolitical developments have become another key swing factor. News of a U.S.–Israel attack on Iran revived fears of recession, particularly given that nine of 10 U.S. recessions since WWII were preceded by sharp oil price spikes. The geopolitical risk premium on oil has moved higher, with markets pricing escalation risks that could push prices over $100 per barrel. However, this historical pattern is unlikely to repeat for the U.S. economy: in our analysis, even if oil prices reach $120 and remained there, recession is still not likely, as the U.S. is far more insulated than 45 years ago.
Trade policy remains a manageable headwind, with the effective tariff burden stabilizing near 9–10%, adding modest price pressure but not threatening the expansion. Overall, we expect growth to remain steady in 2026, supported by a temporary Q1 rebound as shutdown effects fade, though the outlook is increasingly sensitive to whether recent labor market softness proves transitory or more persistent.
Key takeaways:
Growth: We forecast above‑consensus real GDP growth of 2.6% on an annual‑average basis (2.4% Q4-over-Q4) in 2026, reflecting firmer late‑2025 momentum and steadier incoming data. Growth moderates as consumer spending cools, but fiscal‑supported equipment investment, AI‑related capex, and improving productivity help keep the expansion near trend rather than stalling.
Labor market: February’s employment report was a clear downside surprise. Payrolls fell and prior months were revised lower, pushing trend job growth close to stall speed, while the unemployment rate edged back up to 4.4%. Some weakness reflects temporary factors, including healthcare strike effects, but softness was broad‑based across private industries. With wage growth still firm, the labor market appears to be cooling rather than unraveling, but upcoming reports will be key in determining whether hiring re‑stabilizes or slips below breakeven.
Inflation: Core PCE rose 3.0% over the 12 months through December, with recent firmness driven in part by goods‑sector price pressures linked to tariffs, while services disinflation continues but remains uneven. We expect core PCE to move up to 3.2% by mid‑2026 before gradually converging toward the Fed’s 2% target by the end of 2027, though elevated energy prices linked to geopolitical risks could slow near‑term progress.
Federal Reserve: The Fed held rates steady in January, reinforcing a patient, data‑dependent stance amid growing crosscurrents. February’s labor market weakness lowers the bar for eventual easing if softness persists, but rising geopolitical risks tied to the Iran conflict could complicate the inflation outlook and limit near‑term flexibility. We continue to expect two rate cuts in 2026, though the balance of risks suggests the Fed may remain on hold somewhat longer than previously assumed as it navigates increased tension between its dual mandates.
Risks
Downside risks remain elevated, though the base case continues to favor a soft landing. Recent labor market softness suggests less cushion. We maintain a 30% near‑term recession probability, while noting rising geopolitical risks tied to the Iran conflict – particularly through energy prices and financial conditions. Policy uncertainty and the risk of a Fed misstep continue to cloud the outlook.
Macroeconomics forecast at a glance
Produced by the U.S. Bank Economics Research Group, our in-depth economic forecast examines the trends and economic indicators shaping business decisions this year and into the future.
March 2026 Report
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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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