FRBSF – Economic Letter

SF FedViews: Prospects for AI-Related Activity Add to Uncertainty Around the Economic Outlook in 2026

Despite a fourth‑quarter slowdown to 1.4% annualized, the U.S. economy is projected to resume solid, above‑trend growth in the first half of 2026. Labor market indicators show stabilization, with January adding 130,000 jobs and the unemployment rate edging down to 4.3%. Inflation remains elevated, with headline PCE at 2.9% and core at 3.0%, though tariff‑related price pressures are expected to fade. The rapid rise of AI‑related job postings, especially in knowledge‑intensive sectors that contributed half of Q3 2025 GDP growth, adds uncertainty to the 2026 outlook.