U.S. Economic Outlook: May 2026

Research evidence excerpt

U.S. Economic Outlook: May 2026

d to the

Economist | Wells Fargo Economics

AI buildout. A moderating trend in shelter costs and fading tariff impacts seem likely Jackie.Benson@wellsfargo.com | 704-410-4468

to provide a disinflationary counterweight. Still, we now expect core PCE inflation to Shannon Grein peak at 3.5% in Q2 and end the year at 3.1%, modestly higher than our March forecast. Economist | Wells Fargo Economics

• Labor Market Stable Within No Hire/No Fire Context. The recent string of monthly shannon.grein@wellsfargo.com | 704-410-0369

job gains and continued low readings on initial jobless claims indicates that the labor Nicole Cervi

market is not spiraling downward. Beneath the surface, however, conditions are far Economist | Wells Fargo Economics Nicole.Cervi@wellsfargo.com | 704-410-3059

from ideal. Low hiring rates and moderating wage growth continue to signal sluggish

demand for new workers. In our view, there are not many catalysts for a meaningful

pickup in labor demand on the near-term horizon, with delayed monetary easing,

heightened geopolitical uncertainty, and firms increasingly allocating capital toward

AI. Thus, we continue to anticipate a modest pace of hiring in coming quarters and see

nonfarm payrolls averaging 55K per month over the balance of the year. The moderate

pace of job gains should coincide with the unemployment rate drifting up to 4.4% in

Q3, where it is likely to hold through year-end.

• The Fed's Next Move Is a Cut. We are sticking with our call for additional monetary

easing in 2026. Higher inflation in the wake of Iran war will continue to instill a

"wait and see" approach, however, we still view the balance of risks as tilted toward

underlying weakness in the labor market, despite recent signs of stabilization. As such,