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Americans tired of high prices may find some relief in 2026.
or not.
Many analysts believe the economy is finding its footing after several shocks, including from tariffs and the long tail of supply caused by the pandemic. However, some believe that we will see even greater price fluctuations, leading to inflation that can only be contained by a downturn in the economy. Either way, it looks like this year will continue to be a difficult time for U.S. consumers and difficult decisions to make.
bull incident
Many strategists who believe inflation will moderate see it as a sign that the broader economy is gradually slowing.
“A cooling labor market and slowing consumer demand will help ease inflation,” analysts at LPL Financial said in their 2026 forecast.
They predict that PCE inflation (a slightly different measure from the better-known consumer price index) will slowly decline to 2.5% by the end of 2026, from the most recent reading of 2.8%.
Jennifer Lee, senior economist at BMO Capital Markets, agrees. Too many policies in Washington are hurting economic growth, so there’s no way to beat prices, Lee told USA TODAY.
“The softening employment environment will limit what companies can do in terms of raising prices,” he said. He said a deal or a moratorium on tariffs would help, but it would also slow conditions in sectors that rely on migrant labor, such as agriculture and construction.
A “soft” employment situation doesn’t necessarily mean bad news, Lee said. She doesn’t foresee mass layoffs, and as the workforce is naturally shrinking, she thinks workers will have some more leverage.
Some strategists, like those at LPL Financial, expect economic growth to slow in the first half of 2026 and accelerate in the second half of the year as the pro-growth elements of the law widely known as the “One Big Beautiful Bill Act” take effect.
Some predict that OBBBA’s huge tax rebates will bring forward economic growth at the beginning of the year, before slowing down thereafter. As USA TODAY previously reported, the IRS is expected to send an average refund of $3,278 to 104 million taxpayers due to the tax law change.
bear incident
Analysts say the outlook for the economy is less positive, with analysts expecting inflation to remain high or rise again.
“It’s very hard not to expect higher inflation,” said Steve Blitz, chief U.S. economist at GlobalData. “Inflation is going to get higher. The question is when.”
Blitz believes a smaller workforce, larger tax refunds and higher budget deficits are all contributing to higher inflation. However, these factors are likely to be masked by the economic downturn at the start of the year, he said.
“I think the economy is weaker than the key data indicates,” Blitz told USA TODAY. “I keep an eye on the employment statistics. There’s no way the U.S. economy will expand with fewer people employed. That’s not going to happen.”
Schwab analysts agree. In their 2026 outlook, they pointed out that economic demand, rather than supply shocks, is causing inflation to creep up.
“If fiscal aid expands, the labor market holds up, and consumer spending gets back on track, there is some upside risk to inflation next year, likely limiting the Fed’s rate cuts to two or three,” they write. However, they added, that scenario would be unexpected if a “recession-like weakening of the labor market” were to occur.
But what Mr. Schwab says about the overall economic situation is sobering.
“The current economic and market cycle is characterized by instability, not just uncertainty,” the analysts wrote. “Uncertainty generally assumes something unknown, such as an election, war, or a Federal Reserve decision. Instability arises from the inner workings of the system itself.”
What are some examples of instability? “Tariffs and their uneven application. Housing supply is frozen because existing homeowners are locked into low mortgage rates and cannot move without taking out new mortgages at higher rates. Immigration movements are changing labor supply.”
The constantly changing situation makes it difficult for forecasters to consider the future, the analysts added. Anyone who manages a household’s finances, from policymakers to the average American, might agree.
