IMF forecasts US inflation will pick up in 2026 before easing next year

The latest economic forecasts from the International Monetary Fund (IMF) do not bring good news on inflation for Donald Trump, who, less than a month before the midterm elections, is facing his lowest approval ratings, largely because of his handling of the economy.

The IMF has released its updated global outlook against a backdrop dominated by geopolitical shocks, particularly in the energy sector as a result of the conflicts in the Middle East and Ukraine, as well as the rise of artificial intelligence. Its assessment is especially troubling when it comes to inflation, which remains above target and is expected to take longer to return to it.

According to the IMF, headline inflation in the United States will rise to 3.6% this year, two-tenths of a percentage point higher than in its April forecast, before easing to 2.8% in 2027. The IMF also projects that core inflation in the United States will not return to the Federal Reserve’s 2% target until mid-2028.

The difference between the two measures is that core inflation is designed to filter out the most volatile price movements, typically food and fuel costs, and is the gauge central banks use to assess underlying price trends, whereas headline inflation reflects the entire basket of goods and services. The IMF says its projected return of core inflation to the 2% target will be gradual and is expected to occur at roughly the same time in both the United States and the eurozone.

Much of the inflation spike in 2026 is driven by energy prices, which have been pushed up by higher oil costs linked to the war in the Middle East and, more recently, by the intensifying attacks and clashes between the Houthis and Saudi Arabia, particularly targeting oil infrastructure. The IMF assumes an average oil price of $95.74 a barrel this year, up from $67.74 in 2025, and attributes the rise in global inflation from 4.1% to 4.7% primarily to energy and food prices.

But it points to another factor as well: the boom in investment linked to artificial intelligence, which is increasing demand for capital goods, construction, energy and skilled labor. For now, the impact on core inflation remains limited, the IMF notes, but it warns that the effects could spread in economies operating close to full capacity.

The IMF’s baseline scenario assumes that this impact will be contained. It projects that the Strait of Hormuz will reopen in March 2027 and that, in broad terms, pre-war conditions will be restored by October of that year. But more adverse scenarios, including one in which oil prices remain elevated for longer, lead to considerably bleaker forecasts.

According to the IMF’s simulations, the probability that U.S. headline inflation will exceed 4% in 2027 is around 30%, up from 20% in April. The likelihood that growth will fall below 1% that year, implying a mild recession beginning in the fourth quarter of 2026, is also about 30%. That is still significant, though lower than the 35% estimated in the previous forecast. These figures are model-based probabilities rather than forecasts.

As for interest rates, the IMF urges central banks to respond if inflation begins feeding into expectations or wages, while acknowledging that a marked slowdown in growth could pave the way for gradual rate cuts.

Despite inflationary pressures and their impact on interest rates, the IMF projects that the U.S. economy will grow by 2.3% in both 2026 and 2027. The forecast for this year is unchanged from April, while the 2027 figure has been revised upward by 0.2 percentage points. In the second quarter, U.S. GDP expanded at an annualized rate of 2.2%, down from 2.5% in the first quarter. The IMF attributes the economy’s resilience chiefly to private consumption, fiscal policy and investment in technology.

At the same time, although the war in the Middle East is contributing to inflation, it has little direct effect on U.S. output because the country is a net energy exporter. Globally, however, the contrast is stark: the economies of the Middle East and Central Asia are projected to contract by 0.3% in 2026.

AI is the other pillar supporting U.S. growth. The IMF describes it as a force offsetting geopolitical headwinds and notes that its momentum is highly concentrated: the United States and China accounted for more than 75% of net AI hardware imports in 2025 and 57% of all data centers built since 2024.

The IMF is nevertheless cautious about AI’s impact on productivity. Aggregate data still show little measurable effect, although downward revisions to U.S. employment figures alongside solid GDP growth could be an early sign of an AI-driven boost. Its baseline scenario assumes that the technology cycle gradually moderates and does not incorporate a major productivity surge.

In the market-correction scenario modeled by the IMF, U.S. equities fall by 20% in 2026, consumption contracts sharply, and U.S. GDP ends up 1.8% below the baseline scenario by 2028. In another scenario, where Asian suppliers fail to meet demand, U.S. inflation rises by 0.4 percentage points by 2028 and interest rates increase by about 0.7 percentage points.

In the favorable scenario, by contrast, GDP would be 0.4% higher in 2027 and 1.3% higher in 2031. Again, it is worth stressing that these are simulations of alternative scenarios, not forecasts.

Overall, the IMF depicts a global economy facing a divided outlook and vulnerable to shocks from two directions: a prolonged war in the Middle East that would intensify inflationary pressures, and a sharp shift in expectations around AI that could undermine the technology-driven growth boom.

For the United States, that translates into steady economic growth underpinned by the tech sector, alongside inflation that takes longer than expected to return to target. But those prospects rest on foundations that are inherently volatile.

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