What to expect from the economy: 2026 outlook
In the February Economic Update, America's Credit Unions Senior Economist Dawit Kebede looks at what to expect from the economy and how this will impact credit unions.
Kebede projects “moderate growth, stabilizing inflation, and a resilient but cooling labor market.” He also highlights the various uncertainties at play, such as monetary policy, the Supreme Court’s tariff case, and geopolitical tensions.
Economic forecast
Kebede reveals projected economic growth of 2.2% in 2026, with inflation around 2.5%.
“The impact of tariffs is less severe than was feared,” he says. “The effective rate is around 11 percent, much lower than what was announced last April.”
Kebede adds that if the Supreme Court rules the tariffs are illegal, then inflation could go down even more.
Regarding the job market, he notes that the unemployment rate will likely rise to 4.6% this year. Kebede notes AI already appears to be affecting the job market, which began slowing down last year.
The Federal Reserve’s monetary policy is less clear and could shift, as Federal Reserve Chair Jerome Powell’s term expires in May. President Trump has nominated former Federal Reserve Governor Kevin Warsh to succeed him. Kebede says one rate cut is expected in both 2026 and 2027. However, changes to who sits on the Federal Open Market Committee “could tip the balance toward additional cuts.”
Credit union forecast
Credit union savings growth is projected to be up this year to about 6.5%, according to Kebede.
“Several things support this projection,” he says. “Stock returns are unlikely to match 2025, leading to more traditional savings patterns. Excess COVID savings have been depleted, removing a factor that had suppressed deposit growth.”
Loan growth should improve slightly in 2026, but he notes that housing is constrained by high rates and that car sales are still down from the long-run average. However, he points out that delinquency rates should drop this year.
“Loans from 2022 and 2023 are the main drivers of elevated delinquencies,” he notes. “Those older loans are plateauing and will age out.”
The forecast projects Return on Assets to be 0.8% this year and further increasing to 0.85% in 2027. Kebede says net interest margins are increasing and investment portfolios are repricing higher.
All in, the forecast projects 2026 to be a slightly better year for credit unions than last year. Access the full Economic and Credit Union Forecast for the year.
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