Economic growth could be stronger than previously expected
Is the U.S. economy about to accelerate?
The Federal Reserve Board seems to think so. Last week, the Fed updated its outlook for 2026 gross domestic product (GDP) growth and significantly increased its median estimate from 1.8% back in September (and just 1.6% in June) to 2.3% today.
Fed 2026 GDP Projection
That upgrade stems from economic activity reaccelerating following the lengthy federal government shutdown during the fall, as well as higher expected worker productivity as more businesses adopt and use artificial intelligence (AI) technology. Other positive impacts are expected from the One Big Beautiful Bill Act, with individual tax cuts and changes to how companies can deduct capital expenditures, putting more money in consumers’ hands and increasing corporate cash flow for potential business investment.
The Fed’s brighter outlook could have some important implications for investors. For example:
- Stronger GDP growth—both nominal and “real” (or inflation-adjusted)—would especially benefit cyclical businesses and sectors, whose earnings are most sensitive to economic activity levels.
- Stronger growth, coupled with inflation that currently remains above the Fed’s target, could reduce the likelihood of more Fed interest rate cuts next year—even if the new, incoming Fed Chair seeks to promote lower rates.
In aggregate, the Fed’s upward GDP growth revision supports our view that 2026 will see a broadening of earnings growth and market participation across a wider variety of sectors and company types. That, in turn, should provide investors with a growing number of potential opportunities in the coming year.
By Mike Dickson, Ph.D.
Originally published December 17, 2025
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