Economic Outlook - October 2026

The U.S. economy is strengthening, but a hawkish Federal Reserve, housing weakness and tariff pressures could constrain growth and equity valuations.

• Second-quarter annualized GDP growth was revised up to 2.2% from 1.5%, while third-quarter forecasts range from 2.3% to 2.5%.
• Business spending on capital goods rose more than 10% year-on-year, driven by data-center and technology-equipment investment linked to the artificial-intelligence infrastructure build-out.
• The Federal Reserve raised the federal funds target range by 25 basis points to 3.75%-4.0%, and 16 of 18 committee members projected another hike this year.
• A BEA methodology revision applied retroactively over five years lowered August inflation by roughly 0.3%; annualized core PCE was 3.0% versus 3.3% expected, potentially reducing the need for an October hike.
• Consumer demand remained resilient, with August core retail sales up 1.4% after a 0.4% decline in July, but 30-year mortgage rates above 7% and a 2% drop in existing-home sales in August threaten housing activity and builder margins.

Takeaway: Growth and consumption remain supportive, but investors should weigh the artificial-intelligence investment boom against restrictive rates, vulnerable housing, tariff-related trade drag and pressure on discretionary spending and equity multiples.