US economic state at the end of 2026?Overheating (Unemployment <5.0%, Inflation ≥3.5%)

Trump's economy polls terribly. It's also surging. It might surprise a lot of disgruntled voters, but the U.S. economy is doing pretty well. After all, oil prices have repeatedly breached $100 a barrel, driving gas prices above $4 a gallon. The U.S. government’s borrowing costs are rising, pushing mortgage rates above 7%. Consumers are gloomy, and polling on PresidentDonald Trump’shandling of the economy is abysmal. And yet, the economy is powering forward, driven by an AI investment boom, and everyday people who are still spending despite the strain of higher prices.A survey last week by S&P Globalshowed that U.S. business activity accelerated at the fastest pace in more than five years, boosting employment and manufacturing output. That suggests GDP might have grown at a rapid pace of about 4% over the past three months. Unemployment has fallen back down to 4.1%, and the number of new people claiming jobless benefits wasnear 57-year lows, the government said last week. But those positive numbers are hard to pitch to the public just over a month until the midterm elections, whereaffordability concerns are expected to dominatevoter decisions andconsumer sentiment has fallen 15%since the beginning of the year. In fact,Trump’seconomy may be a victim of its own success, with the Federal Reserve expected to raise interest rates at least once more before the year is out in a bid to rein in inflation that’s being fueled in part by that growth. “I do not like to sit there and be in the position of, when a person says they’re unhappy, saying, ‘Oh no, in fact, you are happy,’” saidChris Phelan, chair of the White House Council of Economic Advisers, in an interview. “All that happens then is they get mad at you.” “So if someone is unhappy, at least I want them to know that we’re trying to work on actual policies to address the problems,” he said. Phelanlaid out reasons why Americans should be hopeful about the future. He argued that long-term borrowing costs are rising for the government because investors are optimistic about the nation’s growth. He pointed to higher manufacturing output and business investment in sectors including but not limited to AI. And he said the administration is trying to address specific pain points for consumers, such as by increasing beef imports and passing legislation intended to boost the supply of housing. “In a game of musical chairs, when you make more chairs, more people get to sit, and the price of a chair goes down,” he said. “Or at least doesn’t rise as much.” Over the weekend,Trumpcomplained on Truth Socialthat there isn’t enough media coverage of the solid economic data under his watch. The economy has remained remarkably resilient in the face of multiple shocks, most recently oil prices — spurred byTrump’swar in Iran on top of the Russia-Ukraine conflict — as well as the president’s sweeping new tariff regime. And that resilience doesn’t show signs of fading, thoughsome of its strength may be overstated. But in addition to the likely Fed rate hikes, which would be aimed at slowing business activity, the economy is also facing a looming global diesel fuel shortage, which could worsen cost-of-living concerns. Rory Johnston, an oil market analyst at research service Commodity Context, said the pain will be felt more gradually, in part because there aren’t easy alternatives for the fuel — meaning high prices alone won’t reduce demand for diesel. It will take a reduction in the economic activity behind that demand. “It’s not like a big punch in the face,”Johnstonsaid. “It’s this thing that just slowly starts to show up in everything over time. … There’s really nothing in our lives thatdieseldoesn’t touch.” Fallout from the war in Iran could also threaten some of the green shoots in manufacturing, driving energy costs even higher. Susan Spence, who chairs the committee that puts out a benchmark manufacturing survey from the Institute for Supply Management, earlier this month said there’s a danger that the sector, which in recent months has seen employment expand, could fall back into contraction. “These folks are frustrated,”Spencesaid. “We were just kind of getting a hold on stuff. We managed to survive the tariff chaos. … Companies finally started backfilling [jobs]. It took so long for that number to come back up.” “Now, we’ve got the war,” she added. Another open question is the extent to which the economy and the stock market might suffer if AI doesn’t deliver on promised productivity and investment returns. ButPhelanexpressed confidence that the country’s growth could withstand some disappointment in the tech sector. “This is not the best place to invest in AI. This is the best place to invest, period,” he said. “And if there’s a slowdown in AI investment, this will still be the best place to invest.”

Live: Officials at the Federal Reserve feel relatively confident about the state of the labor market, with the unemployment rate low and monthly jobs growth stable. Instead, they are chiefly focused on inflation, which is running well above the central bank’s 2 percent target. Policymakers are debating the need to raise interest rates to tame price pressures, which have been exacerbated by the energy shock caused by the war with Iran and the lingering impact of President Trump’s tariffs, among other factors. The labor market is not considered a main driver of inflation, with wage growth steady but not accelerating.