The U.S. Economy in Early 2026: Growth, Inflation, and a Weak Job Market

The U.S. economy during the early months of 2026 continues to grow, but so do the costs. On paper, the economic growth has been exceptional, with GDP expanding by 4.4% in Q3 of 2025 and an estimated 4.2% in Q4. However, inflation continues to remain above target and the labor market continues to weaken. Although the headlines may seem to suggest economic growth, there are many underlying indicators that reveal declines in employment and concerns on stability. 

One of the biggest players in the economy right now is the Federal Reserve. On January 28, 2026, the Federal Open Market Committee decided to keep the interest rates from 3.5% to 3.75%. While the short-term interest rates remained the same, the Federal Reserve continued its reserve management purchases of 0-3 year Treasury bonds. This shows that the Fed is not confident enough to slow or boost the economy any further. 

Although this is not technically labeled as “quantitative easing,” it still serves as additional money into the system. With more money circulating in the economy, the consequences may take time to show up. Throughout history, an increase in the money supply usually saw a 12 to 18 month period before asset prices and inflation rose. Likewise, after stimulus programs in 2020, inflation greatly increased in 2021 and 2022. Because of this, inflation is still an underlying issue even though the numbers reflect a currently stable economy. 

The recent inflation data confirms these concerns. The CPI currently sits at 2.7%, while the core CPI is slightly less at 2.6%. Furthermore, PCE and core PCE both sit at 2.8%. Although inflation is no longer rising, these percentages remain well above the Fed’s target of 2%, showing that inflation has only stalled and doesn't look like it’s starting to cool down any time soon. 

Price pressures can also be seen in production. The PPI increased by 3.0% and the core PPI increased by 3.5%. The higher costs for producers will likely eventually be passed on to consumers. Many companies are beginning to raise their prices to balance the production expenses. This increases the risk that inflation could continue to rise. 

Even with all these concerns on inflation, the overall economic growth skyrocketed in the second half of 2025. As GDP fell by 0.5% in Q1, it rebounded to 3.8% in Q2, had a high in Q3 at 4.4%, and is estimated 4.2% in Q4. The initial decline was mainly because of an increase in imports before tariffs came into action. As imports later slowed, that decline was reversed and the GDP was actually pushed higher. 

The GDP growth also comes with setbacks. The labor market took a massive hit, with only 106,000 jobs added in November and December following a loss of 173,000 jobs in October. These numbers were later edited downwards by 868,000 jobs, showing that hiring was much weaker than it was originally believed to be. With this, job growth is at its lowest point since 2010. 

Unemployment data reveals even more. The unemployment rate right now sits at 4.5%, but that is an understatement since about 7.5 million people are actively looking for work. 26% of the unemployed have been jobless for the last 6 months, making it even more difficult for them to reenter the workforce. Additionally, the number of people working part-time jobs because they cannot find full-time jobs increased by 980,000 YoY. 

Layoff data provides even more evidence to support these rising unemployment trends. In 2025, the total layoffs reached a total of about 1.2 million, which is on the same level as major previous depressions like the Great Recession and the Covid-19 pandemic. In the early months of 2026, many companies like UPS, Amazon, Meta, Nike, and Home Depot, to name a few, are continuing to lay off workers, showing that businesses are becoming more accustomed to weaker hiring conditions. 

Overall, this data proves that the economy is growing unevenly, and possibly even in the wrong direction. Strong GDP contrasts with inflation rates that remain above target and labor markets that continue to worsen with slower hiring and greater layoffs. These issues don’t call for an immediate recession, but they do suggest that the U.S. economy has growing concerns that cannot be ignored in 2026.