2026 Global Macroeconomic Outlook
Fourth Quarter
Global Fixed Income team’s view as of September 18, 2026.
Global Economy: Worldwide Growth Shows Resilience
U.S. Economy Gathers Strength
The U.S. economy has remained sturdy in the face of higher energy costs and persistent inflation. The Federal Reserve (Fed) Bank of Atlanta’s GDPNow (as of September 17, 2026) pegs third-quarter growth at 5.1% (annualized).1 If that pace holds, it would mark a significant jump from the second-quarter growth rate of 2.1%.
Strong business investment (particularly in artificial intelligence (AI)-related products) and a rebound in inventories have bolstered the growth forecast. Consumer spending, backed by a solid labor market, has also provided support, though higher gasoline prices remain a headwind. Additionally, federal deregulation and solid corporate profits should continue to sustain steady economic gains.
European Growth Is Slow but Steady
Economic growth in the eurozone remains sluggish, but several positive factors have helped avert a recession. The region’s unemployment rate remains near historical lows, supporting consumer spending. Additionally, AI-related investment and government spending on infrastructure and defense have provided economic support.
However, inflation, which has accelerated in recent months, remains the region’s biggest challenge. Given Europe’s reliance on imported oil, the conflict with Iran has created significant economic headwinds.
Slow but steady growth may also unfold in the U.K., where services sector strength, consumer spending, technology investment and government spending have helped maintain growth. But higher oil and natural gas prices remain a key threat to the U.K.’s economy.
Momentum Is Moderating in China
China’s economy should continue expanding, but at a slower pace than in recent years. Exports and technology sector manufacturing, infrastructure spending and government fiscal support have aided growth. However, a persistent property sector slump and subdued consumer spending remain key challenges for China’s economy.
Elsewhere, despite high oil prices, emerging markets (EM) economic outlooks generally remain solid, with resilient growth and contained inflation risks characterizing the backdrop.
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¹GDPNow is the Atlanta Fed’s running estimate of real GDP growth based on available economic data for the current quarter.
Inflation: Energy Costs Are a Lingering Threat
U.S. Headline Inflation May Be Slowly Moderating
Rising gasoline prices remain the key driver of persistent headline inflation, accounting for more than one-third of the CPI’s monthly increase in August. This kept the annual headline inflation rate at 3.4%. Meanwhile, annual core CPI moderated in August to 2.4%, its lowest pace since March 2021. In our view, while the headline reading was firm enough to prompt the Fed to hike, the underlying composition still points to gradual disinflation.
Shelter continued to deflate, suggesting further moderation ahead. We are closely watching the shelter component, as ongoing weakness in new-tenant leases indicates rent growth could slow in the near term. Core goods remained contained, with limited evidence of renewed tariff or energy-cost pass-through.
Energy Prices Accelerate European Inflation
Eurozone headline inflation has surged in 2026, largely due to the region’s dependence on imported oil. Rising energy costs have filtered through to other consumer prices, pushing the inflation rate to a three-year high.
Before the war in Iran, inflation was stabilizing near the European Central Bank’s (ECB’s) target level. We expect inflation to remain elevated in the near term, but once oil markets stabilize, those pressures should subside.
Similarly, U.K. inflation, which is also highly sensitive to energy prices, remains above-target. Energy costs are still the main driver of the nation’s inflation outlook and economic growth prospects.
Pricing Weakness Challenges China
From an inflation perspective, China remains an outlier on the global stage. Despite the politburo’s ongoing efforts to boost economic growth, consumer price increases have remained unusually low. Soft domestic demand and consumption, a weakening property sector, high unemployment and excess industrial capacity have contributed to the weak pricing backdrop.
The annual inflation rate has lingered near 1% all year. Transport costs associated with rising energy prices have accounted for most of the inflation. More broadly, we expect EM inflation to remain relatively contained, with moderate effects from high energy prices.
Monetary Policy: Hawkish Sentiment Takes Hold
Inflation Focus Finally Prompts Fed Action
Persistent above-target inflation finally triggered the Fed. Characterizing an inflation rate that’s been “too high for too long,” the Fed in September lifted interest rates for the first time since July 2023. We expect the Fed to maintain a tightening bias in the near term. However, continued disinflation in the shelter component and normalization in the volatile services segment may justify a slow, data-dependent path going forward.
ECB Seeks to Tame Rising Inflation
Amid weak growth and mounting inflation, the ECB has opted to focus on the inflation threat. Policymakers have lifted interest rates, given the duration of the oil shock and its effect on consumer prices. The ECB’s bias remains toward further tightening, though policymakers insist they will make future decisions on a meeting-by-meeting basis.
Weak growth and persistent inflation are also creating challenges for U.K. monetary policy. Bank of England officials have emphasized that they can’t directly offset the effects of higher energy prices, but they can prevent energy price increases from spreading across the economy. So far, officials have held rates steady, a stance that could entrench inflation.
Policy Rates Steady in China
Interest rates in China have remained at record lows since May 2025. The People’s Bank of China (PBOC) has signaled a “moderately loose” monetary policy, but an aggressive stimulus program seems unlikely. Despite slowing growth, weak domestic demand and waning business confidence, the central bank hasn’t yet eased.
We believe the PBOC is likely to pursue incremental easing rather than a large nationwide support package. More broadly, core inflation appears largely under control in most EM countries, suggesting that a widespread hiking cycle is unlikely. We still believe some EM central banks could potentially cut rates.
Interest Rates: Yields Head Higher
Treasury Yields Jump
U.S. Treasury yields have surged to multiyear highs, responding to rising oil prices, persistent inflation and rising U.S. government debt. Furthermore, AI-driven corporate debt issuance has contributed to the broad higher-yield environment.
In the coming months, we expect the 10-year Treasury yield to remain elevated, trading in a range of 4.5% to 5%. We also believe the yield may move slightly higher during volatile periods.
Non-U.S. Developed Markets May Offer Opportunities
We are looking for opportunities outside the U.S., but we perceive the relative value is close to fair for now. We are monitoring closely the U.K. and Canada, where markets have priced in more central bank tightening. We believe the fundamentals in those countries justify additional tightening.
We believe Europe’s fiscal outlook is deteriorating, creating an opportunity to reduce euro rates duration. At the same time, some sovereign spreads are near multi-decade wide levels, presenting potential opportunities on both sides of the trade.
Emerging Markets Largely Avoid Recent Yield Surge
While government bond yields in developed markets have been on a sharp upward trend recently, EM yields have increased more modestly.
We believe Latin America currently offers the most compelling mix of attractive yields and potential easing by central banks. Asian markets have strong fundamentals, but yields are generally lower than in other EM regions.
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References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.
Diversification does not assure a profit nor does it protect against loss of principal.
Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.
Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.