2026 Global Macroeconomic Outlook
Third Quarter
Global Fixed Income team’s view as of June 17, 2026.
Global Economy: Growth Remains Modest Overall
How Consumer Spending and AI Are Supporting U.S. Growth
Higher energy costs stemming from the conflict in Iran have largely offset many effects of last year’s fiscal policy boost. Nevertheless, consumer spending, aided by larger-than-usual income tax refunds, continues to support growth.
Additionally, deregulation, strong corporate spending (particularly on artificial intelligence (AI) and other technology products) and prior Federal Reserve (Fed) easing should continue to drive steady economic gains. Meanwhile, solid corporate profits and investment have supported the job market, with tight labor supply and rising productivity fueling a low-hire, low-fire dynamic.
Why Europe’s Growth Outlook May Stay Below Trend
Oil disruptions tied to the conflict in Iran have pushed global energy prices higher, driving inflation higher. Given Europe’s reliance on imported oil, the conflict has created significant economic headwinds for the region.
Furthermore, U.S. tariffs and global trade tensions, and weak consumer and business confidence, are also weighing on growth rates in the eurozone and the U.K. Meanwhile, stable labor market conditions and government spending in the eurozone have provided some positive offsets.
We think a recession remains unlikely, unless the energy shock worsens, but sub-trend growth throughout Europe and the U.K. should continue.
We Think China’s Growth Momentum Could Fade
Exports and technology-sector manufacturing have recently supported solid growth in China. However, as global demand slows and domestic demand softens, we expect China’s growth rate to moderate in the second half of the year. Persistent property sector weakness and uneven retail spending remain headwinds driving an uneven economy.
Elsewhere, emerging markets (EM) economic outlooks remain mixed, depending on the impact of oil prices, tariffs, trade, politics and fiscal and monetary policies.
Inflation: Oil Shock Triggers Inflation Shocks
Rising Energy Costs May Keep U.S. Inflation Elevated
While the U.S. is largely energy independent, it isn’t insulated from rising global oil prices. Shipping disruptions in the Strait of Hormuz have reduced global oil supply, pushing gasoline and energy prices higher worldwide.
This dynamic recently drove U.S. headline inflation to a three-year high. Core inflation has risen, too, remaining well above the Fed’s 2% target mostly due to persistently high housing and services costs. Nevertheless, we expect inflationary pressures to slowly ease later in the year, if energy markets normalize.
While the labor market remains resilient, the core goods component remains stable. We currently expect core goods to be mildly disinflationary in the second half of 2026. However, stronger consumer demand could alter that trajectory.
How Oil Prices Are Driving European Inflation
Headline inflation in the eurozone surged through mid-2026, largely due to the region’s heavy dependence on imported oil. Before the war in Iran, inflation had slowed and stabilized near the central bank’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 is highly sensitive to oil price shocks. However, slowdowns in housing, household services, food and other components have helped offset the overall effects of soaring gas prices.
What’s Keeping China’s Consumer Prices Relatively Low?
Regarding inflation, China remains an outlier on the global stage. Despite the politburo’s ongoing efforts to boost economic growth, consumer prices have only slightly increased overall. Soft domestic demand and consumption, high unemployment and industrial oversupply have largely accounted for the weak pricing backdrop.
Non-food prices, particularly transport costs associated with rising energy prices, have helped keep the annual inflation rate near 1%. We expect these trends to linger, given the prolonged Middle East conflict and weak domestic demand.
Monetary Policy: Rate Hikes Creep Back into Outlooks
Most Fed Officials Expect Higher Rates by Year-End
Elevated inflation has complicated the market’s outlook for the Fed. So far this year, the market has shifted from expecting the Fed to cut interest rates to anticipating a late-year rate hike. The Fed's June meeting revealed that nine officials expect to raise interest rates by year-end, while eight members expect no change.
We believe a rate-hike scenario is unlikely, given our expectations for inflation to moderate as the year progresses. But the market’s back-and-forth views about Fed policy expectations may continue.
Under new Fed Board Chair Kevin Warsh, we expect the Fed to remain on hold until late 2026 or early 2027. With Warsh at the helm, we also believe the Fed will pursue deregulation, a smaller balance sheet and communication changes.
Rising Inflation Pushes Europe to Hike Rates
Persistently high oil prices left the European Central Bank (ECB) no choice but to raise interest rates in June, the first hike since 2023. Policymakers recently suggested that keeping interest rates steady was no longer an option, given the duration of the oil shock and the effect on inflation. However, shifting to a tightening policy could be risky, given the region’s weak economic growth.
A rate hike seems less likely in the U.K., where central bank policymakers have suggested they will remain on hold through year-end. But a prolonged oil price shock could alter that outlook.
China’s Rates Remain at Record Lows
The People’s Bank of China (PBOC) has held interest rates steady at record lows since May 2025. Officials have signaled a “moderately loose” monetary policy for 2026 and noted they still see room for additional cuts this year.
However, despite slowing growth, weak domestic demand and waning business confidence, the central bank hasn’t yet eased. With a primary goal of keeping the nation’s currency stable, the PBOC is likely to pursue selective easing rather than a traditional rate-cut cycle.
Elsewhere, country-specific inflation dynamics and political risks have led to diverging EM central bank strategies.
Interest Rates: Yields Remain Range-bound
What’s in Store for the Treasury Yield Curve?
We expect U.S. Treasury yields to remain at levels that may deliver solid income and total return potential. We expect the 10-year Treasury yield to hover between 4.25% and 4.75% in the coming months. Steady economic growth, persistent inflation pressures and rising federal debt levels should help maintain a steep yield curve.
With the Fed likely on hold, shorter-maturity rates should remain anchored. Longer-maturity rates will likely shift in response to changes in growth and inflation data.
Non-U.S. Developed Markets May Offer Opportunities
We believe certain developed markets may offer attractive yield potential versus the U.S., including government bonds in the U.K. and New Zealand. In these markets, yields extend further out, which may appeal to longer-term investors. We believe policymakers will raise interest rates more gradually than market expectations, or even keep rates on hold, if energy prices decline quickly.
Additionally, when hedged back to the U.S. dollar, New Zealand’s have bonds offered some of the highest carry available in developed markets.
Why Yields in Emerging Markets Have Moved Higher
Government bond yields in emerging markets are generally materially higher than in developed markets. Policy rates in most EM countries have risen to close-to-neutral levels, pushing bond yields higher. The limited availability of fiscal support in emerging markets leaves monetary policy as the primary stabilizing force.
When inflation shocks emerge, EM central banks often react aggressively, raising rates more quickly than those in developed markets. From here, we see a higher bar for yields to fully retrace back to pre-Iran conflict levels. Central bankers will likely want to see a peak in the inflation backdrop or the resurfacing of downside growth risks before altering policy.
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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.