US Inflation Forecast for 2025-2026: Analyst Predictions

The core US inflation rate remains stubbornly high, but economic observers expect it to gradually decline over the coming months.

Their predictions come as Federal Reserve (Fed) Chair Jerome Powell declared in a speech that inflation was on a sustainable path to its 2% goal.

However, what are the key factors that could derail the southbound inflation rate in the US, and how will Donald Trump’s election as US President affect the economy?

Our US inflation forecast for 2025-2026 and beyond examines the latest economic data and reveals the US inflation predictions of analysts and economists.

Table of Contents Table of Contents

1. Key Takeaways
2. Latest Inflation Statistics
3. Latest Inflation News & Trends
4. Factors Currently Influencing Inflation Rates
5. When you are trying to gauge an accurate US inflation forecast for the next 5 years, it's important to consider key economic indicators.
6. US Inflation Forecast for the Rest of 2024, 2025, 2026 & Beyond
7. US Inflation Rate History
8. The Bottom Line
9. FAQs
10. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. Latest Inflation Statistics
3. Latest Inflation News & Trends
Show Full Guide
4. Factors Currently Influencing Inflation Rates
5. When you are trying to gauge an accurate US inflation forecast for the next 5 years, it's important to consider key economic indicators.
6. US Inflation Forecast for the Rest of 2024, 2025, 2026 & Beyond
7. US Inflation Rate History
8. The Bottom Line
9. FAQs
10. References

Latest Inflation Statistics

So, is the US inflation coming down, or will it remain at its current level?

Any US inflation rate forecast needs to consider the changes in the prices of goods and services over the past year.

The Consumer Price Index for All Urban Consumers rose 0.2% on a seasonally adjusted basis in October, according to the US Bureau of Labor Statistics.

It pointed out that this was the same increase as in each of the previous three months, while the all-items index has increased 2.6% (before seasonal adjustment) over the past 12 months.

The figures also revealed that all items less food and energy index rose 3.3% over the last 12 months.

Meanwhile, the PCE US inflation rate rose 0.2% in September or 0.3% once food and energy had been excluded, according to the Bureau of Economic Analysis.

Over the past year, the Fed’s preferred measure of inflation has increased by 2.1%. When food and energy is stripped out, this figure is 2.7%. This is slightly ahead of the 2.6% expectations.

Price Movements in Different Areas

Here, we outline how various costs have moved, as determined by the CPI.

Latest Inflation News & Trends

So, what is the latest news that’s likely to influence the US inflation rate forecast of analysts, economists, and other industry observers?

Fed Predictions: Inflation On Target For 2%

During mid-November 2024, Jerome Powell, the Federal Reserve Chair, gave an upbeat assessment of the economic outlook and US inflation projections for 2024.

In a speech in Dallas, Texas, he said:

“Inflation has eased substantially from its peak, and we believe it is on a sustainable path to our 2% goal. We are committed to maintaining our economy’s strength by returning inflation to our goal while supporting maximum employment.”

He pointed out that the labor market had cooled to the point where it was no longer a source of significant inflationary pressures.

“This cooling and the substantial improvement in broader supply conditions have brought inflation down significantly over the past two years from its mid-2022 peak above 7%,” he said.

Powell emphasized that core measures of goods and services inflation, excluding housing, had fallen rapidly over the past two years.

“We expect that these rates will continue to fluctuate in their recent ranges,” he said. “We are watching carefully to be sure that they do, however, just as we are closely tracking the gradual decline in housing services inflation, which has yet to fully normalize.”

“We are committed to finishing the job,” he added. “With labor market conditions in rough balance and inflation expectations well anchored, I expect inflation to continue to come down toward our 2% objective, albeit on a sometimes-bumpy path.”

So, what is the US inflation expected to be over the coming year?

Factors Currently Influencing Inflation Rates

When you are trying to gauge an accurate US inflation forecast for the next 5 years, it’s important to consider key economic indicators.

Jobs Data

The unemployment rate was unchanged at 4.1% in October 2024, while the actual number of people out of work was around seven million, according to the official data.

However, these figures represent an increase over last year when the jobless rate was 3.8%, and the number of unemployed people stood at 6.4 million.

“The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.6 million in October,” it stated. “This measure is up from 1.3 million a year earlier. In October, the long-term unemployed accounted for 22.9 percent of all unemployed people.”

According to James Knightley, chief international economist, US, at ING, worker caution on the US jobs market suggests momentum is shifting.

In a late October update, he wrote:

“Consumer confidence rebounded in October, but job vacancies surprisingly fell at a time when worker sentiment surrounding the jobs market is already weakening. If workers are increasingly concerned about job security this may run the risk that they start changing their spending behavior, justifying ongoing gradual interest rate cuts from the Fed.”

Geopolitical Conflicts

Ira Kalish and Robyn Gibbard of the Deloitte Global Economics Research Center believe there are always downside risks to even positive forecasts.

In their Q3 outlook, they wrote:

“We see risks centering around two interrelated issues: geopolitical conflicts and trade policy, which could combine to yield persistent inflation.”

They pointed out that conflicts in Ukraine and the Middle East were at risky stages, and the possibility of escalation was high.

“Both conflicts are in regions with major petroleum production, and so one likely outcome of escalation could come in the form of higher oil prices,” they wrote. “In this scenario, the price of oil rises and remains about US$10 above baseline throughout 2025.”

However, they added that geopolitical conflicts weren’t just fought with weapons as trade policy was “increasingly a battleground” for competition.

The Trump Effect

President-elect Donald Trump’s economic policies could stoke inflation and hurt the US economy, according to the Peterson Institute for International Economics.

The study suggested that deporting millions of people, imposing steeper tariffs, and eroding the Federal Reserve’s political independence would have a negative impact.

“These three policies combined would result in lower US national income, lower employment, and higher inflation than otherwise,” it stated. “In some cases, economic conditions recover over time, but in others the damage continues through 2040.”

US Interest Rates

Preston Caldwell, Morningstar’s chief US economist, believes another rate reduction is on the cards in 2024.

“We expect the Fed to proceed with a 25-basis point cut in its upcoming December meeting, although we see about 20% probability of a skip, in line with current market expectations, according to CME FedWatch,” he said.

There are a number of factors that could influence this either way. “Some combination of firmer data on inflation, the labor market, or economic activity could drive the Fed to skip in December,” he explained.

According to Russ Mould, investment director at AJ Bell, the UK and US headline interest rates could be at 4% by Christmas 2025, although the anticipated pace of cuts has slowed.

Mould said:

“It could be down to sticky inflation, worries about government borrowing levels, or the absence of a long-awaited recession, but investors are starting to cut back on the number of interest rate cuts they are expecting from the US Federal Reserve and the Bank of England.”

This means expectations have changed. “A month or two ago, markets were pricing in a Fed funds rate and a Bank of England base rate as low as 3.5% by next Christmas, but 4% now seems to be the current consensus for 12 months’ time,” he added.

As well as the aforementioned sticky inflation, Mould also believes the current views could be due to concern that the economy may overheat in the event of generous Trump tax cuts.

US Inflation Forecast for the Rest of 2024, 2025, 2026 & Beyond

So, what are the US inflation predictions of leading observers? In particular, what is their US inflation forecast for 2025?

Well, for any US inflation forecast, it’s worth considering what has happened in the past and where we are now compared to a few years ago.

For example, after soaring to 6.5% in 2022, which was the highest level since 1981, it dropped to 3.7% in 2023, according to Preston Caldwell, Morningstar’s chief US economist.

“We project inflation to continue to fall, averaging 2.4% in 2024,” he said. “And then averaging just 1.8% over 2025 to 2028.”

“The final impetus to ensure that inflation returns to the Fed’s 2% target will be provided by slowing economic growth in late 2024 and 2025. Combined with ongoing supply-side expansion, this should push inflation slightly below the Fed’s 2% target in 2025 and 2026,” Morningstar added in the latest note.

According to the International Monetary Fund’s long-term US inflation forecast, compiled by Statista, the inflation rate could reach 2% in 2025 and stay at 2.1% in 2026, 2027, 2028, and 2029.

Bret Kenwell, US analyst at investment platform eToro, warned in mid-November 2024 that it’s important not to overlook the US CPI projection.

“Inflation worries seem to have gone out the window given the recent rate cut and the election outcome,” he said. “However, it’s still very much a key economic release to keep an eye on.”

He also suggested interest rate movements were still being predicted.

“Right now, the bond market is pricing in about a 60% chance of another 25 basis point rate cut from the Fed in December,” he added.

So, what will the USA inflation be in 2025?

According to Ben Yearsley, director of Fairview Investing, the US inflation outlook is rather mixed.

He told Techopedia:

“Dollar strength seems to be back in vogue after a few months off, which should help stifle inflation. However, the counter to that is that President Trump’s policies and spending plans will probably be inflationary.”

Yearsley doesn’t believe there are any signs from the US government that the country will be living with its means.

“The problem with increased fiscal largesse (on both sides of the Atlantic) is that it makes it harder for central banks to reduce rates,” he added. “That in itself is a good thing in combating inflation but bad if you want economic growth.”

Overall, Yearsley believes the picture is “very confusing,” with some suggestions that US inflation bottomed a while ago and has been picking up.

“As long as it stays in the 3% range, then there shouldn’t be a problem,” he added. “For what it’s worth, that’s where I think it will settle.”

Core inflation in the US has remained “stubbornly high” and has been stuck at around 3.3% for five quarters, according to Jason Hollands, managing director at Evelyn Partners. 

He told Techopedia:

“While we still expect a 25-bps interest rate cut to come through at the Fed’s next meeting, the resilience of the US economy and potentially very expansionary fiscal policy of the incoming Trump administration creates the prospect of an inflationary headwind and therefore stands in the way of steeper declines in rates.”

He pointed out that this was reflected in current Treasury 10-year yields which have nudged up from 3.6% in mid-September to 4.4% currently despite a backdrop of the Fed cutting rates from 5.5% to 4.75% over this period.

“Were the next administration to implement global tariffs on all imports, this would push up the cost of goods for US consumers,” he said. “Combine that with the implementation of mass deportations of illegal migrations, which would lead to labor shortages and wage pressures in sectors like agriculture and hospitality, and the juicing up of the economy with tax cuts, this would all prove inflationary.”

However, Hollands believes that much depends on the extent to which President Trump implements the policies he advocated during the election campaign and at what pace.

“Despite the Republicans having majorities in both the House and Senate, unbridled approval of all the tax measures advocated is far from guaranteed as these are unlikely to garner the support of fiscal hawks concerned about the ballooning deficit,” he said.

Meanwhile, even Trump’s rhetoric on tariff policies may prove to be a “bargaining chip to bring trading partners to the table” in search of bilateral deals.

“Therefore, as things currently stand, markets fear that inflation may not be done and dusted but could be over-factoring in the policy positions pronounced by Donald Trump in the campaign,” he added. “One positive is that oil prices remain soft, in part due to expectations that the new administration will pursue a ‘drill baby drill’ position when it comes to domestic output.”

US Inflation Rate History

It’s fair to say the US inflation rate history between October 2020 and October 2024 makes for some very interesting reading.

In fact, a Statista chart detailing the monthly inflation rate in the country over this period illustrates how sharply it has both risen and fallen.

For example, the 2022 spike was attributed to COVID-19 spending, supply chain constraints, and global disruptions due to the war in Ukraine.

The Bottom Line

It appears that the US inflation forecast of many observers is for it to continue falling over the course of 2024. The belief of the Fed is that it’s heading closer to its 2% target.

However, many variables are at play. One of the most significant issues is the policies President-elect Donald Trump will prioritize after he moves into the White House.

For example, some commentators believe that a Trump presidency could see policies introduced that fuel inflationary growth, but that is speculation at the moment.

More broadly, ongoing geopolitical uncertainty and movements in the jobs market could also have an impact. Either way, we’re in for an interesting couple of years.

FAQs