U.S. Economy in 2026: Steady Corporate Profits and Continued Wage Growth, Fed Plans Rate Hike in July

U.S. Economic Outlook for 2026

Looking ahead to 2026, the U.S. economy is expected to stay strong as the impact of recent tariffs from the Trump administration winds down. Corporate earnings are projected to remain solid, supporting ongoing wage increases at healthy levels. According to the latest Federal Reserve Beige Book, business conditions among large manufacturers and corporations have improved for two consecutive quarters, signaling continued growth.

The Federal Reserve has already signaled plans to raise interest rates in its December 2025 policy meeting, with additional hikes expected between July and September 2026. The target federal funds rate is likely to increase from the current 0.75% to around 1%, aiming to keep inflation in check while supporting economic stability.

Potential for a Long-Term Dollar Weakening

Despite ongoing rate hikes, the dollar might continue to weaken against other major currencies. This is partly due to upcoming midterm elections in the U.S. in late 2026, where the Trump administration is expected to push for large-scale tax cuts and pro-growth policies. These measures could boost economic optimism and inflationary pressures, leading to a sustained dollar decline.

Expectations of a recovering U.S. economy and rising inflation could keep the dollar under pressure, with a “weak dollar” trend likely to persist. If the Federal Reserve signals further rate hikes, the dollar could strengthen temporarily, but overall, a softer dollar might be the trend for the foreseeable future.

Stock Markets Continue to Reach Record Highs

Yamato Securities CEO Akihiko Ogino describes 2026 as a year of “breaking new records,” with the stock market soaring to new heights. The Dow Jones Industrial Average and S&P 500 are expected to stay strong, driven by corporate earnings and investor confidence. Currently, the Dow is trading above 35,000 points, reflecting a bullish outlook.

Meanwhile, Mitsui Fudosan President Toshi Ueda highlights that ongoing wage increases and rising stock prices are supporting consumer spending and business investment, keeping the overall economy resilient and expanding.

Inbound Tourism Boosts the Economy

Koji Shibata, President of ANA Holdings, points out that strong inbound tourism is giving a big boost to Japan’s travel industry, and similar trends are happening in the U.S. as well. Increased travel demand from international visitors, combined with government initiatives to improve airport infrastructure and promote domestic tourism, is expected to further energize the economy.

Concerns Over China’s Rare Earth and Export Restrictions

On the flip side, ongoing export restrictions by China on military and civilian goods, including rare earth minerals, could pose challenges for the U.S. economy. According to estimates from the National Institute of Advanced Industrial Science and Technology, broad restrictions on Chinese exports could impact the U.S. economy by roughly $107 billion annually.

If restrictions focus solely on rare earths, a three-month export ban could cause economic losses of around $66 billion, reducing U.S. GDP by about 0.11%. A full year of restrictions might lead to losses exceeding $260 billion, roughly 0.43% of GDP, highlighting the potential economic risks involved.

U.S. Treasury Secretary Janet Yellen plans to discuss these issues at the upcoming G7 meeting in Washington on January 12, emphasizing the importance of international cooperation on critical minerals and trade policies.