Economists have sharply upgraded their outlook for the U.S. economy under President Donald Trump, with the latest Wall Street Journal survey showing a dramatic reversal from the pessimism that dominated forecasts through much of 2025.
The January 2026 survey of 82 economic forecasters reveals recession fears have receded sharply while growth expectations have jumped, particularly for the near term. Forecasters now expect substantially stronger economic momentum heading into Trump’s second year in office than they anticipated just three months ago.
The probability of a recession occurring within the next 12 months stands at 27 percent, down from a peak of 45 percent in April 2025 when many economists panicked following the Trump administration’s Liberation Day tariff policy. This is around the average chance during the post-pandemic period.
Growth Expectations Surge
The shift in sentiment is most pronounced in near-term growth forecasts. Economists now expect fourth-quarter 2025 GDP growth of 2.23 percent on an annualized basis, nearly double the 1.14 percent they forecast just three months earlier in October 2025.
First-quarter 2026 growth expectations also jumped significantly, rising to 2.13 percent from 1.47 percent in the October survey. For full-year 2025 on a fourth-quarter-over-fourth-quarter basis, forecasters now anticipate 2.35 percent growth, up from 1.92 percent expected in October 2024.
The upgrades suggest economists believe the economy is carrying stronger momentum into 2026 than previously anticipated, potentially giving Trump more room to pursue his policy agenda without triggering an economic downturn.
Labor Market Forecasts Improve Dramatically
Expectations for job creation have also improved substantially. Economists now forecast average monthly payroll gains of 64,535 over the next four quarters, a 31 percent increase from the 49,367 jobs per month predicted in October 2025.
The unemployment rate is expected to remain near historic lows, with forecasters predicting a rate of 4.52 percent by June 2026, essentially unchanged from the 4.50 percent rate they anticipated three months ago and below the April panic forecast of 4.68.
The improved labor market outlook represents a significant shift from concerns earlier in 2025 that Trump’s policies might trigger job losses or economic weakness.
Interest Rate Expectations Shift
The stronger growth forecasts have led economists to revise their expectations for Federal Reserve policy. Forecasters now expect less aggressive rate cutting from the central bank, with the federal funds rate anticipated to reach 3.08 percent by year-end 2026, compared to 3.34 percent expected in April 2025.
Long-term interest rates have moved higher as recession fears faded. The 10-year Treasury yield is now forecast at 4.15 percent by June 2026, up 45 basis points from the 3.70 percent predicted in October 2024. The increase reflects diminished demand for safe-haven assets as economic pessimism has evaporated.
Inflation Remains Moderate
Despite the stronger growth outlook, inflation expectations remain relatively contained. Economists forecast consumer price inflation of 2.80 percent by June 2026, down from 3.03 percent in October, suggesting they believe the economy can handle stronger growth without triggering a significant acceleration in prices.
The improved forecasts come as Trump has pushed forward with an aggressive policy agenda including tariff increases, tax cuts, and regulatory rollbacks. While some economists initially feared these policies could spark inflation or disrupt economic growth, the survey suggests concerns have moderated as the economy has proven more resilient than anticipated.
From Pessimism to Optimism
The transformation in forecaster sentiment has been dramatic. In the spring of 2025, nearly half of surveyed economists believed a recession was likely within 12 months. Job creation forecasts were weak, and expectations for Federal Reserve rate cuts were aggressive as economists anticipated the central bank would need to respond to economic weakness.
By January 2026, that pessimism has largely evaporated. Growth forecasts have strengthened substantially, particularly for the near term. Labor market expectations have improved markedly. And long-term interest rates have risen as the “recession premium” that depressed them has disappeared.
The shift suggests economists now believe Trump’s second term is unfolding against a backdrop of solid, sustained economic growth rather than the contraction many feared was possible a year ago.
However, the timing of the improvement—accelerating notably after Trump’s inauguration and as his policy agenda has taken shape—suggests forecasters see the administration’s economic approach as either beneficial or at least not derailing growth as some initially feared.
Read the full article here