United States: Sideways growth with stagflation risks – TD Securities

TD Securities strategists anticipate US output growth to stagnate in 2026, with the Gross Domestic Product (GDP) forecast at 2.5% quarter-on-quarter annualized and full-year growth slightly below trend at 2.1% Q4/Q4. They foresee a low unemployment rate of 4.3% by year-end but caution that the Iran-related oil shock and rising input costs pose stagflation and recession risks.

While data appear positive in mid-Q3, following a less optimistic July, GDP growth is expected to remain steady, with the labor market stabilizing. However, higher input costs from the oil shock may hinder hiring. The odds of a US recession within the next year are assessed at 25%. The outlook remains uncertain due to developments in Iran and the new policies of the Trump administration, including trade, fiscal, regulatory, and immigration measures.

Core PCE inflation is projected to hit the Fed's target for two consecutive reports in July, with headline prices up by 0.15% and core PCE staying at 0.13% m/m. Retail sales data indicate weakening consumer spending, with July and real terms growth at 0.2% and 0.1%, respectively. Gradual disinflation is expected to resume in 2027.

Gold continues its upward trend, reaching its highest level since May near $4,650, following the US Treasury's increased liquidity support buyback operations in the 10-year to 20-year and 20-year to 30-year sectors.