Highlights
“The Fed revised the short-term inflation outlook upward and modestly increased the GDP growth projections, while the unemployment forecast remained unchanged.“
Summary
The U.S. economy showed mixed performance in the first quarter of 2026, with moderate GDP growth, a broadly stable labor market, rising energy-driven inflation, and the Federal Reserve maintaining its benchmark interest rate unchanged amid geopolitical risks and inflationary pressures.
Domestic production expanded during the quarter. Consumer spending, private investment, exports, and government spending contributed positively to GDP, while imports (a subtraction in GDP calculations) partially offset these gains. Government expenditures increased following the fourth quarter of 2025 decline related to the government shutdown, supporting overall growth.
Inflation picked up during the first quarter, with energy prices rising sharply in March. Crude oil prices rose late in the quarter amid supply concerns stemming from developments in the Middle East. The Federal Reserve cited geopolitical risks and elevated inflation in maintaining a cautious policy stance.
The labor market remained broadly stable in the first quarter of 2026. The unemployment rate held around 4.3%, consistent with full employment. Nonfarm payroll growth remained positive but was concentrated in a limited number of industries. The labor force declined during the quarter, with labor participation inching lower.
Capital markets posted losses in the first quarter, reflecting concerns about inflationary expectations and a shifting interest rate outlook. The tech-heavy NASDAQ indexes, the broader S&P 500, and the Dow Jones Industrial Average registered losses, while the Dow Jones Utility and Dow Jones Transportation indexes posted gains. The Dow Jones Composite remained practically unchanged.
Housing market conditions softened, with home prices declining year-over-year in more than half of the metro areas tracked by the S&P Case-Shiller Home Price Index (20-city). Elevated mortgage rates and affordability constraints continued to weigh on demand.
The Fed revised the short-term inflation outlook upward and modestly increased the GDP growth projections, while the unemployment forecast remained unchanged. Longer-term inflation and growth projections were revised slightly upward, though the changes were limited.