Wells Fargo sees US growth rebound in 2026 on policy shifts, cooling tariff pressures

Wells Fargo projects U.S. real GDP will reaccelerate to about 2.3% in 2026 as a more stimulative fiscal stance, easing monetary policy and a stabilization (not escalation) of tariffs relieve downside risks; business investment—especially technology and AI capex—will be the main growth driver while consumer spending should remain resilient but muted. The bank expects inflation to stay above the Fed’s 2% target through year-end 2026 (core PCE ~2.6% Q4/Q4), with tariff-driven goods inflation lasting into mid-2026 and services inflation cooling, and sees unemployment near 4.5% with hiring slowly improving to roughly 90,000 jobs per month late in the year. Wells Fargo’s baseline Fed view is a 25bp cut in December followed by two more cuts in H1 2026 taking the funds rate to 3.0–3.25%, though risks are skewed to a lower path if activity softens; globally, growth should continue but slow, with recent protectionist moves weighing on activity and early-year monetary divergence pressuring the dollar before a potential rebound post-cut cycle.

Analysis

Wells Fargo projects U.S. real GDP growth of 2.3% in 2026, attributing the improvement to a more stimulative fiscal stance, easing monetary policy and a stabilization of tariffs after 2025 marked the peak in the average effective tariff rate. The bank identifies business investment—particularly technology and AI-related capital expenditure—as the principal growth engine, while consumer spending is expected to remain resilient but not a standout contributor, aided in part by near-term tax relief under the One Big Beautiful Bill Act.

The firm expects inflation to remain above the Federal Reserve’s 2% target through year-end 2026, projecting core PCE at 2.6% on a Q4/Q4 basis, with tariff-related goods inflation persisting into mid-2026 even as services inflation slows. Labor-market readings are mixed due to a government-data blackout; Wells Fargo forecasts unemployment near 4.5% with hiring improving to roughly 90,000 jobs per month late in 2026.

Wells Fargo’s baseline Fed path includes a 25bp cut in December and two additional cuts in H1 2026 bringing the federal funds rate to 3.0%–3.25%, while noting risks skewed to an even lower rate path if activity softens. Elevated but stabilizing tariffs and recent protectionist measures are cited as ongoing drags on global activity and potential sources of sectoral dispersion and dollar volatility early in the year.

Key Decisions for Investors

• Increase exposure to companies positioned to benefit from technology and AI capital expenditure given Wells Fargo’s view that business investment will be the primary growth driver
• Consider modest duration extension and selective exposure to rate-sensitive equities ahead of the roughly 75bp easing path penciled in through mid-2026, while maintaining hedges for persistent above-target inflation (core PCE ~2.6% Q4/Q4)
• Reduce or hedge exposure to import-dependent, tariff-exposed names and prefer firms with pricing power or domestic supply chains as tariff-driven goods inflation is likely into mid-2026
• Monitor labor-market indicators and Fed communications closely and be prepared to increase defensive positioning or trim cyclicals if mixed hiring data crystallizes into a sharper slowdown than Wells Fargo’s baseline