Wells Fargo lifts U.S. growth outlook, expects two additional Fed rate cuts

Investing.com -- Wells Fargo raised its forecasts for U.S. economic growth and now expects two more interest rate cuts from the Federal Reserve in the first half of next year.

In a note on Wednesday, the bank said it has “become modestly more constructive on the outlook for economic growth” and now expects “U.S. real GDP to expand 2.0% in 2025 and 2.3% in 2026 on an annual average basis, a bit stronger than our September update.”

Wells Fargo said the upward revision followed “stronger readings on consumer spending.”

The bank noted that “aggregate personal consumption expenditures [are] growing at an annualized rate of 3.0% in Q3-2025, an accelerated pace from the first half of the year.”

Growth in business investment, “in part due to robust AI and other high-tech investment,” was cited as another support factor.

However, Wells Fargo cautioned that “the headwinds from elevated capital costs, trade policy changes and increased uncertainty will likely become more evident as the year rounds to a close.”

Inflation “remains above the FOMC’s 2% target,” the bank said, adding that the core PCE deflator rose 2.9% year over year in August.

“Core inflation of 2.9% year-over-year in Q3 and 3.0% in Q4 seems likely in our view,” Wells Fargo wrote, though it expects “a gradual easing through 2026 and 2027.”

The bank said it expects the Federal Reserve to “look through a temporary uptick in inflation” and deliver “a 25 basis point cut at both the October and December FOMC meetings, with two additional 25 bps rate reductions in the first half of 2026.”

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