The American Bankers Association’s Economic Advisory Committee expects continued slow U.S. economic growth for the remainder of 2025 and a modest pickup in 2026. The group’s latest forecast released indicates inflation will remain stubbornly high and above the Federal Reserve’s 2% inflation target.

The committee, composed of 16 chief economists from some of North America’s largest banks, expects Q4/Q4 real economic growth at 1.3% in 2025 with an increase in 2026 to 1.8%, supported primarily by stronger consumer spending and investment. At the same time, softening in the job market has put the risk of recession at one-in-four in 2025 and one-in-three by the end of 2026.

“With the labor market weakening and persistent inflation headwinds, the U.S. economy continues to grow at a slow pace,” said Luke Tilley, committee chair and chief economist at M&T Bank/Wilmington Trust. “On the positive side, the committee expects the U.S. economy to pick up a bit of steam in 2026, driven by a recovery in consumer spending growth.”

Labor market concerns have increased since the committee’s last meeting. The committee expects the unemployment rate to increase and peak at 4.6% in the first half of 2026 and then drift down slightly through the end of next year.

“The labor market is facing significant challenges,” said Tilley. “Firms have reduced job openings in response to slower economic growth and heightened uncertainty. At the same time, layoffs remain low while slower immigration and weak labor force growth have kept a lid on the unemployment rate for now.”

The ABA committee expects inflation to continue to run above the Federal Reserve’s 2.0% target. The committee’s forecast is that personal consumption expenditures inflation, the Fed’s preferred indicator, will be 2.7% in Q4 2025 and 2.8% in 2026, as tariffs push goods prices higher.

Despite persistent inflation, the bank economists expect a series of interest rate cuts over the next few quarters. While the current effective federal funds rate sits at 4.12%, the committee expects three more 25-basis-point cuts between now mid-2026. This would put the federal funds rate between 3.25% and 3.5%.

Even with expected labor market weakness, the committee expects consumer credit delinquency rates to decline from 2.9% in 2025 to 2.7% in 2026. The decline in consumer delinquency rates can be attributed to slightly lower interest rates and continued asset price appreciation that partially offset headwinds in the labor market and higher inflation.

“The committee expects consumer spending to slow a bit more in the second half of 2025, but avoid contraction, before slowly accelerating to near-trend growth of 1.9% by the end of 2026,” Tilley said. “Delinquency rates remain low, underscoring the resilience of U.S. households. With equity markets at record highs and home values elevated, many consumers remain well positioned to support economic growth.”

The ABA group expects minimal changes to mortgage rates and modest home price appreciation in the near term. The bank economists anticipate mortgage rates will stay around the 6.4% range between now and the end of 2026. National house price appreciation is expected to be minimal, with an expected annual increase of 1.1% next year.